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Mandatory Provident Fund (MPF)

Getting rid of the MPF offset mechanism would be the best legacy for CY Leung

Letting employers use their workers’ contributions to offset severance defies logic and is in no one’s interest

PUBLISHED : Wednesday, 04 January, 2017, 2:11am
UPDATED : Wednesday, 04 January, 2017, 2:11am

Retiring Chief Executive Leung Chun-ying says the key outstanding promises from his election manifesto five years ago include the ending of the controversial Mandatory Provident Fund offset mechanism that costs workers billions, and a retirement protection scheme. The two are not unconnected. The MPF would be a more effective contributor to financial security in retirement if bosses were not entitled to claw back their contributions to cover severance and long-service pay.

Bad bosses, and there’s little that CY Leung can do about it

The exercise of this right has depleted MPF accounts by more than HK$25 billion since the scheme was introduced in 2000. This does nothing to strengthen the government’s argument for a means-tested public pension targeted at the poor, as opposed to a much more expensive universal scheme preferred by 90 per cent of respondents to a consultation. Employers’ resistance to interference with the offset therefore comes at a potential cost to the community. It remains undiminished by the prospect of the government’s latest attempt to break a stalemate, which may be unveiled in Leung’s last policy address next month.

According to a source familiar with the proposal, rather than abolishing the scheme, the government is considering a cut-off date with subsidies to employers towards the cost of severance and long-service payments to soften the impact, which would be phased out over time, in return for scrapping the controversial offset mechanism. This could come at the cost of watering down the current severance and long-service formula, of two-thirds of the latest month’s pay multiplied by years of service. Officials have some serious persuading to do. Liberal Party chairman Felix Chung Kwok-pan, said the proposal had not been discussed with the business sector “so we will not support it”.

Hong Kong government looks at subsidies to business in abolishing controversial offset mechanism

The mechanism defies logic. It is in everyone’s interests, including those of employers, for the community not to be overly dependent on government payments, otherwise officials will be tempted, sooner or later, to tax more to finance them. For Leung to phase it out would therefore be a valuable legacy.