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Mandatory Provident Fund (MPF)

Executive Council backs HK$7.9 billion plan to scrap contentious MPF offset mechanism

Chief Executive Leung Chun-ying concedes that last-minute decision could be altered by next administration under Carrie Lam

PUBLISHED : Friday, 23 June, 2017, 6:00pm
UPDATED : Sunday, 25 June, 2017, 4:57pm

Just a week before his term ends, Hong Kong leader Leung Chun-ying offered his long-awaited proposal to stop employers from dipping into workers’ pension funds for severance and long-service payments – sparking strong opposition in the business sector.

Labour unions were not impressed either with the chief executive’s eleventh-hour announcement on Friday after he held a special meeting with his policy advisers on a way out of the much-criticised Mandatory Provident Fund (MPF) offsetting mechanism.

Leung admitted that his proposal to stop the practice by offering employers a subsidy of HK$7.9 billion to tide them over a 10-year period following the move could be rejected by his successor, Carrie Lam Cheng Yuet-ngor, after she takes office on July 1.

Strong opposition from the business sector could also block it in the Legislative Council, as lawmakers’ approval is required to amend the relevant legislation.

‘Scrap MPF offset mechanism now or expect no change in Hong Kong status quo’

Leung’s final proposal, which was approved by the Executive Council on Friday, is unchanged from the version he floated in his policy address in January.

Until a date for implementation is determined, employers could continue to use employees’ pension funds to offset their severance or long-service payments on a pro rata basis, Chief Secretary for Administration Matthew Cheung Kin-chung said. And once a date was set, it would not apply retroactively.

The amount payable after the effective date will be adjusted downwards from the existing entitlement of two-thirds of the last month’s wages to half, as compensation for each year of service.

“We believe this is a workable plan as employers have 10 years’ time to get prepared in terms of their financial and manpower arrangements,” Cheung added.

The new administration still has the authority to change this decision
Leung Chun-ying

Leung called it the “most optimum option devised so far” after three months of consultations with both employer and employee groups.

“We think the social consensus is very clear: the MPF offsetting mechanism should be scrapped. That’s why we decided to take it forward,” he said.

“But the new administration still has the authority to change this decision.”

He would not say whether the approval of his proposal was a unanimous Exco decision, citing confidentiality rules.

Leung has been hard pressed throughout his term of office to resolve one of the biggest bones of contention between the city’s business and labour sectors. In 2012, he campaigned for the chief executive’s job promising to “progressively reduce” the proportion of MPF contributions that employers could raid.

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

The labour and business sectors have not reached a compromise over the government’s proposal and Exco members were known to be poles apart on it.

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

There was a strong backlash from business groups which branded the government as “reckless” for making a “rash” decision. They warned that the plan could hit small and medium-sized firms hard.

“The government does not understand the difficulty of running small and medium-sized companies,” said Louis Pong, chief executive officer of the Employers’ Federation of Hong Kong.

Labour Advisory Board member and unionist Tang Ka-piu said he was disappointed that severance and long-service payments would be reduced.

“I don’t know why the government insists that employees need to make some sacrifice in order to please the business sector. Why it refused to offer more protection for employees,” he said, vowing to fight for support from the next government to meet labour demands.