Mandatory Provident Fund (MPF)

Businesses must help Hong Kong leader climb ‘mountain’ of pension reform

The administration is pushing to end the retirement scheme’s offsetting arrangement that hugely benefits employers. Companies are understandably resistant to the change, but the alternative of raising taxes to cover the shortfall means everyone loses

PUBLISHED : Monday, 02 April, 2018, 1:11am
UPDATED : Monday, 02 April, 2018, 1:10am

The chief executive has begun a fresh assault on a “mountain” that defeated the previous administration’s promise to level it. That was Carrie Lam Cheng Yuet-ngor’s description nearly two years ago of the controversial issue of the MPF offset mechanism. This allows employers to claw back contributions to workers’ pension fund accounts to offset the cost of long-service and severance pay entitlements when they let them go.

To put her description into perspective, the Mandatory Provident Fund Schemes Authority said last year that over a 15-year period nearly HK$32 billion of such payments by employers had been offset from workers’ pension funds. Resistance from employers – especially small-to-medium enterprises – to any change in this extraordinary concession is therefore understandable.

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It remains a political mountain for Lam to climb, as evidenced by the employers’ stance in the latest negotiations last week. But climb it she must, if even modest retirement protection for employees, the “very purpose” of the MPF in her words, is not to be undermined.

The offset mechanism was the price of employer cooperation, but it should not have been countenanced in the first place. Depletion and lower compound growth of pension savings in an ageing population and the spectre of impoverished retirement are in no one’s interests. Now taxpayers are being asked to foot the bill for a bad decision.

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Last week Chief Secretary Matthew Cheung Kin-chung and Secretary for Labour and Welfare Law Chi-kwong began lobbying for support from the business and labour sectors for a plan to end the offset mechanism with a government commitment of HK$17.2 billion to help ease the burden on small business for 12 years. This is more than double the subsidy offered by former chief executive Leung Chun-ying. Employers would need to save the equivalent of 1 per cent of a workers’ wages to help cover severance and long service in the long term, with the government subsidy to be reduced gradually from the fourth year onwards.

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The business sector has flagged strong opposition on the grounds of administrative complexity and inadequate provision against a future financial burden. Lam has nevertheless indicated determination to build consensus on doing away with the offsetting arrangement to safeguard the purpose of the MPF.

The business sector needs to be convinced of the benefits in the longer term of a huge MPF investment pool that also funds retirement and limits dependence on welfare for the elderly in a rapidly ageing society. Otherwise the government is more likely to be forced to consider the more unpalatable option of raising our low tax rates to finance welfare that helps people live in basic dignity.