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Mandatory Provident Fund (MPF)

Blame Hong Kong’s selfish employers for the deadlock on MPF offsetting mechanism

Albert Cheng says workers deserve a fairer deal, and employers who have benefited from the arrangement over the past 18 years should not stand in the way of the government doing the right thing now 

PUBLISHED : Thursday, 17 May, 2018, 2:58pm
UPDATED : Thursday, 17 May, 2018, 7:39pm

After years of debate on how to stop employers dipping into employees’ nest egg in the government-mandated provident fund, Hong Kong is no closer to a consensus. For this we can blame Hong Kong’s greedy capitalists, who have strongly opposed the abolition of the so-called offsetting mechanism in the Mandatory Provident Fund, and are pressuring the government to withdraw its proposal. 

It is well known that Hong Kong does not have a comprehensive retirement protection scheme. Labour rights have been deteriorating since 1997, when Hong Kong scrapped plans to introduce a collective bargaining law. With our ageing population, a retirement protection scheme should be formulated as soon as possible.

What the Hong Kong government’s MPF offsetting plan is really about

The MPF scheme was launched in 2000. Over the years, however, the low rate of return on investment and unreasonably high administrative fees have been criticised for undermining employee interests. Among the fund’s many faults, the offsetting mechanism is particularly unfair. 

Back in the day when the government was lobbying the business sector to support the MPF’s introduction, it struck a deal with business owners allowing them to use the accrued benefits derived from employee contributions to offset severance and long-service payments. A staggering HK$31.8 billion of contributions have been offset since the start of the MPF scheme.

Former chief executive Leung Chun-ying did not act on this unfair system until he was about to leave office. That was when he proposed to abolish the offsetting mechanism. The work now falls to his successor, Carrie Lam Cheng Yuet-ngor

The government has proposed changes that are considered relatively mild. Under this plan, the government will remove the offsetting mechanism, thus requiring employers to stump up the severance and long-service payments by other means, while committing HK$17.2 billion to help ease the burden on small businesses for 12 years. 

Employers will need to set up a savings account and contribute the equivalent of 1 per cent of employees’ wages to cover the payments, which would be capped at 15 per cent of a worker’s annual wage. To cushion the blow for employers, the government would give out subsidies in a two-tiered system, starting at between 50 and 70 per cent for the first three years. 

‘Over HK$15 billion’ needed to scrap retirement offset mechanism

However, the business sector is not satisfied with this arrangement. The five biggest business chambers in the city, including the Hong Kong General Chamber of Commerce, have voiced strong objections. The Hong Kong Business Community Joint Conference, an alliance representing 114 business chambers, has declared it would not accept the “unfair” proposal. 

The alliance’s secretary general, Aaron Shum Wan-lung, even boldly claimed that the proposal would give rise to “heartless employees” who would not mind getting sacked after a few years to get the long-service payments. Employees would be tempted to keep changing jobs till they get their MPF payout at 65, he said. 

Why should Hong Kong employers pay twice towards workers’ retirement?

Employers who talk such nonsense are the “heartless” ones. With the high cost of living in Hong Kong, who would dare risk getting fired for such a small sum long-service payment? More likely, it is the employers who would try to find a loophole – by sacking their employees before they are eligible for the long-service payments. 

Without MPF fix, Hong Kong employees’ pension savings at risk

The alliance also said the plan would hurt business expansion plans and deter young people from launching start-ups in Hong Kong. This is nonsense; in some well-established economies where start-ups flourish, like Australia and Singapore, employers’ contributions are 9.5 per cent and 17 per cent respectively. 

The business groups have tabled some counter-proposals. One suggestion is for the government to increase the subsidies, to the tune of HK$37.5 billion over 15 years, which would double the amount the government has offered. Another is for the government to bear half the costs of the severance and long-service payments, with no time limit. Some are also urging the government to offer employers interest-free loans to cover the financial burden. 

Obviously, business owners are refusing to shoulder their social responsibility. Instead of trying to pass on the burden to the government, they should push the government to come up with a better retirement protection plan than the MPF. 

Albert Cheng King-hon is a political commentator. taipan@albertcheng.hk