Hong Kong business groups fight to keep pension offset mechanism with offer of 1 percentage point rise in contributions

Employers propose increased contribution to employee retirement funds in exchange for controversial arrangement being allowed to stay

PUBLISHED : Friday, 05 May, 2017, 11:52am
UPDATED : Friday, 05 May, 2017, 11:39pm

Hong Kong’s five major business chambers have proposed keeping a controversial arrangement where bosses dip into workers’ pension funds for severance and long-service payments, in return for them increasing their contributions to employees’ retirement accounts by one percentage point.

The battle by workers to scrap the so-called offsetting practice continued on Friday with the government’s Labour Advisory Board meeting in the afternoon to discuss the latest proposal by the business sector.

Currently, employers and employees are each required to contribute an amount equal to 5 per cent of the worker’s salary to the employee’s Mandatory Provident Fund account, which serves as a pension fund, with a maximum monthly contribution of HK$1,500.

The chambers propose increasing the MPF contributions of employers by one percentage point, to 6 per cent, with the government contributing a further 1 per cent, but under the plan an arrangement called the offset mechanism would remain.

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Sacked employees are entitled to long-service or severance payments under the law. But the offsetting mechanism allows employers to fund this amount using their MPF contributions. The arrangement has drawn fierce criticism from labour groups.

Jimmy Kwok Chun-wah, an employer representative, said the plan would mean employers paying an extra contribution of HK$5.4 billion a year, with the government shouldering a similar amount, enough to cover the HK$3.4 billion offset under the current scheme.

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“We are trying to solve the problem caused by the offsetting mechanism, instead of the mechanism itself,” Kwok said. “[The mechanism] has worked through several economic crises in the past 16 years.”

The Federation of Hong Kong Industries, Chinese Manufacturers’ Association of Hong Kong, Hong Kong General Chamber of Commerce, Chinese General Chamber of Commerce and Employers’ Association of Hong Kong put forward the new proposal.

Chief Executive Leung Chun-ying proposed in his policy address in January that the proportion of employer contributions used to offset long-service payments should be gradually reduced over a 10-year period. A HK$6 billion fund to help employers absorb the financial burden would also be set up.

Another proposal involves a fund pool, which would get an initial HK$15 billion injection from the government, while employers would contribute HK$100 to HK$200 per employee. The new pool would then cover severance and long-service payments.

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Lawmaker and employee representative Bill Tang Ka-piu, of the Federation of Trade Unions, said workers wanted the mechanism abolished so they did not have to use their pensions to fund their long-service payments.

“What we want is to stop employers from offsetting [the severance payment],” Tang said. “[The chambers’ proposal] will benefit workers the least [among the three plans].”

The Labour Advisory Board, comprising six members each side representing employers and employees, advises the government on labour matters, with agreements usually being adopted by the authorities.