Mandatory Provident Fund (MPF)

Hong Kong’s low-income workers are being robbed of their retirement savings by MPF offset injustice

Kalina Tsang says the offset mechanism is defeating the original purpose of the MPF scheme to protect employees from falling into poverty after they finish work

PUBLISHED : Wednesday, 30 December, 2015, 3:20pm
UPDATED : Wednesday, 30 December, 2015, 3:20pm

The government has finally announced a six-month consultation on the long-awaited retirement protection scheme, including the Mandatory Provident Fund’s controversial offsetting mechanism. While Chief Secretary Carrie Lam Cheng Yuet-ngor recognised that the mechanism deprives employees of benefits, it is greatly disappointing that the consultation documents do not include plans on how and when to abolish this unfair mechanism and tackle the offsetting issue. The business sector has already made clear that it strongly opposes changes to the mechanism, but low-income workers cannot afford to have it kept in place.

Clearly, something has gone terribly wrong with our retirement savings system if Hong Kong’s employees are being compensated out of their own pockets

Under the mechanism, employers are able to use their portion of contributions to employees’ retirement funds to offset their severance and long-service payments. According to the Mandatory Provident Fund Schemes Authority, a total of HK$25.77 billion from employers’ contributions has been used to offset employers’ severance and long-service payments since the launch of the MPF scheme. In 2014 alone, the offset reached a staggering HK$3 billion. Clearly, something has gone terribly wrong with our retirement savings system if Hong Kong’s employees are being compensated out of their own pockets.

Unsurprisingly, this is affecting low-income workers most. Since employees who earn HK$7,100 a month or less are not required to contribute to their MPF accounts – only their employers are – what little they have left after their MPF savings are offset naturally fails to support their basic needs after retirement. This only facilitates their transition from working poverty to elderly poverty. This is not a small group either – according to the 2014 “Report on Annual Earnings and Hours Survey”, there are 265,200 workers who earn less than HK$7,100 a month.

READ MORE: Hong Kong business forum urges chief executive not to touch MPF offset system

Outsourced workers are also greatly affected by this mechanism as their employers need to bid for new service contracts every two to three years, so these workers’ contracts can change often. Sixty-eight-year-old Sally, for instance, worked 11 years for several cleaning companies outsourced by the government. At the end of 2012, she was laid off as the government did not renew its contract with the company for which she worked. However, before she was to leave her job, her supervisor persuaded her to sign a document which turned out to be a resignation letter. This meant Sally could not receive any severance pay, which by law the employer was required to give her.

With the help of a non-governmental organisation, and after involving the Labour Tribunal, Sally finally received HK$6,000 in compensation. She had worked for four years with the company and should have been entitled to close to HK$20,000. However, most of this amount was offset by her own MPF savings, so the company only needed to pay HK$6,000.

Sally’s case is just one of many. By being laid off and re-employed every few years, outsourced workers lose significant amounts of their retirement benefits.

The inherent injustice of this mechanism is not a recent development – it can trace its roots back to 1974 when the government first introduced severance payments and to 1986 when long-service payments were brought in, and employers were allowed to offset these payments from their contributions to employees’ retirement protection plans or annual allowance. In 1995, to gain support from the business sector to set up the MPF scheme, the offset mechanism was again put forward to allow employers to offset these payments using their MPF contributions.

READ MORE: Time to rationalise the patchwork retirement provisions for Hong Kong workers

The aim of this mandatory system is to provide retirement benefits for the workforce; allowing the offset mechanism to exist defeats its original purpose.

As the biggest employer in Hong Kong, the government should take the lead. It made great strides in 2004 when it introduced a minimum wage for non-technical staff. It should now further protect workers by discussing with the business sector and labour organisations how to scrap the offset mechanism.

It is nonsensical to enforce a compensation policy that essentially robs workers of their retirement savings. Having toiled for years to make ends meet, retirement protection is the very least workers deserve.

Kalina Tsang is senior manager of the Hong Kong Programme at Oxfam Hong Kong