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Mandatory Provident Fund (MPF)

Why should Hong Kong employers have to pay twice towards workers’ retirement?

Mike Rowse says that the Mandatory Provident Fund’s foundation was possible thanks to an understanding previous governments had with business, including that they ‘do not need to pay twice’. Reneging on those promises would be a breach of trust

PUBLISHED : Sunday, 08 April, 2018, 12:17pm
UPDATED : Sunday, 08 April, 2018, 5:31pm

To understand why Hong Kong Secretary for Labour and Welfare Law Chi-kwong is on the wrong track with respect to suggested changes to the Mandatory Provident Fund (MPF) scheme, you need to compare him to US President Donald Trump. Trump, as we have all seen, has no compunction about reneging on deals reached by his predecessors with respect to trade within North America, Iran’s nuclear capabilities and other issues.

This sets a terrible precedent. Whoever would believe America’s signature on any future agreement? If you were in the government of Canada or Mexico – both friends of America, remember – would you have confidence in a renegotiated North America Free Trade Agreement if Trump ripped up the existing one? What would stop him from coming back two or three years down the road and demanding an even better deal? If you were Ayatollah Ali Khamenei or President Hassan Rowhani of Iran, would you believe a revised agreement on development of nuclear capability would be honoured by the Americans even if you scrupulously complied with its terms, as Tehran has been doing with the present one?

More immediately, when Trump sits down with North Korean leader Kim Jong-un in May – if the meeting goes ahead – if you had seen what Trump threatened to do to Nafta and the Iran nuclear deal, would you, without hesitation, have any confidence that your regime was secure and you could agree to give up your nuclear weapons and accept a denuclearised Korean peninsula? In the back of your mind would always be the thought that what the man agreed to today could be tossed aside tomorrow. Even when the US has a more honourable president than the incumbent, some time in the future, the damage done to America’s reputation will linger for decades.

And now back to the more parochial issue of the MPF. Periodically over the past six years, chief executives and candidates for the position have made public statements to the effect that they will improve the scheme for the benefit of employees. In particular, they want to end the current offset arrangements whereby employers can meet their obligations under the long service payment scheme from the contributions they have made to employees’ MPF accounts.

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Not surprisingly, such amendment proposals are very popular with employees and trade unions, who have portrayed the offset device as employers “raiding” employees’ MPF savings to cover their long service payment obligations. This is a false representation of facts, but has a superficial attraction and the government has done nothing to correct the impression. Given that official silence, not surprisingly the neutral observer would be inclined to support the worker’s case for a better deal. There is a general feeling in the community that workers are not getting their fair share of the fruits of Hong Kong’s prosperity, so apparently giving them a bit more at employers’ expense sounds reasonable.

But the proposals are opposed by many employers, and however suspicious we may be of their motives, we have a duty to examine their counter-argument. The full history is set out in detail on David Webb’s website. Suffice to say, employers were assured, publicly in the Legislative Council on at least three occasions by Law’s predecessors, that they would not have to pay twice.

When the proposed MPF scheme was debated in Legco, the minister said, inter alia, “At present, the employer’s contributions to a retirement scheme may be set off against any amount he has paid out for severance payments or long service payments. Employers do not pay twice. Severance payments and long service payments are not designed as supplementary retirement schemes. They are intended as alternatives to these retirement schemes. That is why the offsetting provisions exist under the present voluntary system of occupational retirement schemes. We do not intend to change it under the MPF.”

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It was on the basis of such assurances that employers accepted and Legco voted for introduction of the MPF. Those assurances also bind Law.

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Recognising that the employers have a point, the current government – and before it the administration of Leung Chun-ying – has put increasing sums of public money on the table (we are up to HK$17 billion, and there are hints there could be more) to help small and medium-sized enterprises in particular cope with scrapping the offset, in a bid to persuade them to accept the proposal.

In a recent TV interview, Law urged employers to regard it as a “cost of doing business”. But that is not the point. Employment law is a complex area involving employers, employees and the government as a sort of umpire. There has to be cooperation and trust for the whole thing to work. Reneging on past undertakings does not help. Next time employers – or employees for that matter – are given assurances, they are going to remember this episode.

The government needs to come clean. The long service payment should be abolished; indeed, it should have been done away with years ago. Its objectives are now (mostly) covered by the MPF. There may be a case for more help for employees during brief periods of unemployment. Employers could pay into a new scheme for that purpose, and the HK$17 billion would be a useful first instalment.

Mike Rowse is the CEO of Treloar Enterprises. [email protected]