Mandatory Provident Fund (MPF)

Hong Kong bosses may be forced to set aside savings to make long service and severance payments

Chief Secretary Matthew Cheung floats idea as way to break impasse over scrapping of controversial pension fund offset mechanism

PUBLISHED : Thursday, 20 July, 2017, 10:00pm
UPDATED : Thursday, 20 July, 2017, 10:51pm

Hong Kong employers may be forced to set aside a sum of money in the form of “savings” to pay long service and severance payments under a proposal the government is considering for the time when bosses can no longer dip into staff pension funds to cover the two payments.

Chief Secretary Matthew Cheung Kin-chung floated the idea on Thursday as he made it clear that the controversial Mandatory Provident Fund offset mechanism – which has for years strained relations between workers and bosses – must be scrapped.

Businesses have complained that their operating costs will rise if they are not allowed to use their contributions to staff MPF accounts to offset long service and severance payments.

To ensure that employers will be financially capable of making the two payments, Cheung said the government was considering legislation stating that businesses must set aside a sum of money as “savings”.

“It’s like we are forcing the employers to save money. It’s like before you leave home for work, your wife asks you to set aside HK$100 as savings,” Cheung told a media lunch. “The money still belongs to employers.”

Cheung did not offer further details of the idea, including the size of the “savings” and how often employers would have to set aside money.

Last month, the Executive Council accepted the government’s proposal to scrap the offset mechanism. But unionists were not happy because the government watered down the formula for calculating long service and severance payments.

At present, the payments are calculated by taking two-thirds of a person’s last monthly salary. Under the Exco plan, it would be lowered to half.

The government has pledged to subsidise employers to the tune of HK$7.9 billion over 10 years, but business says this is not enough.

The government is now considering increasing the subsidy. A final proposal is expected to be announced by year’s end.

Under the present mechanism, the maximum amount of long service and severance payments that a worker is entitled to is set at HK$390,000.

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

On Thursday, Cheung said the government is considering keeping the two-thirds formula while lowering the HK$390,000 cap to an unspecified level.

The idea was first floated by Secretary for Labour and Welfare Dr Law Chi-kwong in March before he became a minister.

He said at the time that lowering the cap to HK$200,000 did not make much difference to grass-root workers.

Official figures show that last year, only 7.3 per cent of employees received long service or severance payments of HK$200,000 or above.

Irons Sze Wing-wai, honorary president of the Chinese Manufacturers’ Association, said he was open to setting aside money for the two payments since it would have to be paid anyway.

But it would be better if the government could match the amount, he said.

“And I don’t think it will make much difference if the cap is lowered to HK$200,000.

“On average, workers receive long service or severance payments of about HK$70,000. It would be better if the cap was lowered to around this level,” he said.

Labour Advisory Board unionist member Chau Siu-chung said lowering the cap would harm workers’ interests.