Mandatory Provident Fund (MPF)

Hong Kong’s small firms raging at leading business groups for ‘betrayal’ over MPF offsetting subsidies

Hong Kong Business Community Joint Conference insists more financial help should be forthcoming before controversial severance and long service payment mechanism is scrapped

PUBLISHED : Thursday, 21 June, 2018, 10:43pm
UPDATED : Friday, 22 June, 2018, 10:07am

Hong Kong’s small and medium-sized enterprises have condemned the city’s five biggest business chambers for “betraying” them after they failed to insist the government provide indefinite subsidies to help employers build up workers’ nest eggs.

The Hong Kong Business Community Joint Conference, representing more than 100 business associations on the issue, insisted more financial help should be forthcoming before the mechanism allowing bosses to dip into staff pensions to pay severance and long service awards was scrapped.

The costs of scrapping the Mandatory Provident Fund offsetting mechanism could overwhelm them, they said.

Aaron Shum Wan-lung, the alliance’s secretary general, said: “It’s easy for many small and medium-sized businesses to close down, such as when they face rent hikes.”

With the move, Hong Kong was discouraging entrepreneurs to launch start-ups, Shum said, adding the alliance would issue a sterner rejection of the proposal and suggest alternatives.

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The offsetting mechanism has been in place since the MPF began in 2000. In 2016, employers offset HK$3.85 billion (US$490 million).

The government has been trying to quash offsetting for years, amid complaints that workers are not able to save enough for retirement.

In March, it put forth a plan where employers would set up a savings account and contribute 1 per cent of employees’ wages to cover the payments. It would be capped at 15 per cent of a worker’s annual wage.

Why is government’s MPF offsetting plan so controversial?

The government would provide HK$17.2 billion in subsidies to soften the blow to employers for 12 years. The subsidy scheme would be rolled out as a complex, two-tiered system with a 50 to 75 per cent subsidy provided for the first three years.

From the fourth year the subsidy percentage would decrease gradually until it falls to less than 10 per cent in the 12th year.

Last week, the Labour Advisory Board, comprising union and business representatives, said they agreed with scrapping offsetting, though with better support to tide over smaller firms.

But the business representatives did not insist on indefinite subsidies for these firms, saying only that financial help should be given over the “long term”.

This upset alliance members, who discussed the matter on Wednesday, with Shum remarking that the business representatives had “suddenly changed their stance on the matter 180 degrees, which made us feel stunned and seemingly betrayed”.

Why Hong Kong’s MPF is little more than a cruel joke

Board labour representative Bill Tang Ka-piu, of the Hong Kong Federation of Trade Unions, said the government would likely sweeten the deal for smaller firms.

But even if its proposal failed to win full approval from the business and labour sector, it could still push ahead and table a change to the MPF law at the Legislative Council.

Labour minister Law Chi-kwong said earlier in the week that the government would look at how it could better support SMEs through the transition.

Additional reporting by Peace Chiu and Shirley Zhao