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Hong Kong's state-funded pension scheme

Setback for Hong Kong leader Leung Chun-ying over pension fund offset bid

Chief executive now in race against time to fulfil his election pledge after Executive Council fails to reach consensus on controversial issue

PUBLISHED : Thursday, 15 June, 2017, 4:21pm
UPDATED : Thursday, 15 June, 2017, 11:56pm

Hong Kong’s leader hit a snag in his race to fulfil his election promise to tackle the mechanism that lets employers offset long service and severance payments with their contributions to pension funds, after members of his cabinet on Thursday failed to reach a consensus on the issue.

The Executive Council discussed various proposals as the government sought to woo the highly reluctant business sector with a watered-down proposal that would incur less additional expenses for employers.

Hong Kong government to subsidise firms scrapping MPF offsetting mechanism for a decade

“If employers or employees hold on to their views and do not try to understand each other ... the harm brought by the offsetting mechanism will continue to grow and harm every employee,” Chief Executive Leung Chun-ying said on Thursday night.

He said the government was willing to offer HK$7.9 billion to subsidise employers for 10 years, up from HK$6 billion pledged earlier. He added that the government had considered proposals from employers and the labour sector. Those proposals just did not work, he said.

“We will continue to press ahead and finalise our proposal by the end of June.”

With his term coming to an end this month, Leung is in a race against time to fulfil his election promise to “progressively reduce” the proportion of Mandatory Provident Fund contributions that employers can use to offset long service and severance payments.

Last year HK$3.85 billion was offset by employers – up 70 per cent from HK$2.27 billion in 2012.

Details of the confidential Exco discussion remained unclear. But the day before the meeting, sources said the government proposed to the Labour Advisory Board a watered-down version of its earlier proposal, which barred employers from offsetting both long service and severance payments.

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But under the latest proposal, employers would still be allowed to offset long service payments while being barred from doing so for severance payments. A ban on long service payment offsetting would be implemented at an unspecified time further down the road.

“I don’t think the government’s proposal will work,” said Jimmy Kwok Chun-wah, deputy chairman of the Federation of Hong Kong Industries. “We have already shown sincerity by presenting our own proposal.”

He was referring to the business sector’s proposal that employers contribute an additional 1 per cent of monthly staff wages to MPF accounts on top of the 5 per cent they are already contributing. The government will have to match the contribution.

Under this proposal, employers would still be allowed to offset the two types of payments.

Chinese Manufacturers’ Association president Eddy Li Sau-hung said this proposal was better because every employee – including those who will not be sacked and receive severance payments – will benefit.

If this plan is adopted, the government has estimated that it and employers would have to fork out HK$320 billion in the coming three decades, according to sources.

Federation of Trade Unions lawmaker Michael Luk Chung-hung described the government’s latest proposal as “unreasonable” and “unfair”.

“It is hard to accept that workers will not be rewarded for the long service they give to their employers. This reward is very important,” he said. “Even if the government is able to give us a timetable on when employers can no longer offset long service payments, we will have to consult workers first to see if they find it acceptable.”

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

If the Executive Council fails to give its approval by the end of this month, Carrie Lam Cheng Yuet-ngor will have to take up the issue when she becomes the city’s leader next month.

Under the government’s original proposal, bosses would no longer be allowed to offset either long service or severance payments. The government would subsidise employers for their additional expenses.

In the first and second years after the mechanism is scrapped, the government will subsidise 50 per cent of the money employers spend on the payments.

The proportion of subsidy will be reduced gradually to just 10 per cent in the ninth and tenth years.

In the first year following the removal of the mechanism, the government estimates employers will have to pay an extra 0.01 to 0.02 per cent of their total wage bill, or between HK$111 million and HK$147 million.

On Tuesday, Exco passed a working hours proposal that was criticised by unionists as “meaningless”.