The pension regulator has made a lot of changes to improve the image of the Mandatory Provident Fund but it would be hard to fully restore its popularity unless the unfair offset mechanism is scrapped.
The mechanism allows employers to use their portion of contributions to the MPF to offset the severance due an employee. Under the law, a company that fires a worker with more than five years of service must pay a long-service fee equal to the number of years of service multiplied by two-thirds of the employee’s monthly income up to HK$15,000 for each year, or a maximum of HK$390,000.
When Leung Chun-ying joined the chief executive race in 2012, his election manifesto included a line saying he would seek to lower the proportion of withdrawals by employers for the offset mechanism. But three years after Leung took the city’s top job, nothing has changed. No consultation, no study, and not even a mention in this year’s Policy Address.
The business sector would of course oppose any change in this mechanism as it saves them a lot of money. But how about the 2.5 million employees covered by the scheme? The government should reform the system to prevent their retirement plans from being eroded by this unfair mechanism.
In the first half of last year, the latest period for which statistics is available from the Mandatory Provident Fund Schemes Authority, employers used the MPF offset mechanism to pay HK$1.55 billion to employees. That would make it the second highest amount of all withdrawals from the MPF, next only to retirement withdrawals at HK$HK$2.25 billion and higher than the HK$1.44 billion withdrawn by those permanently leaving Hong Kong.
Three years after C.Y. Leung took the city’s top job, nothing has changed. No consultation, no study, and not even a mention in this year’s Policy Address
From the establishment of the MPF in 2000 to mid-2013, over HK$20.71 billion have been withdrawn by employers under the offset mechanism.