Explainer | What is the MPF offsetting mechanism and why are workers happy the Hong Kong government is set to scrap it?
- For decades, companies have been using workers’ retirement funds to cover severance and long-service payments
- But the government is finally set to axe the mechanism, which means more money going to employees, while bosses will initially be supported by subsidies
A long-overdue labour bill aimed at doing away with a controversial loophole that allows employers to raid workers’ pensions to cover their severance and long-service payments will go through a second and third reading at Hong Kong’s Legislative Council on Thursday.
Here, the Post examines what the new law will entail.
1. What prompted the government to act?
The offsetting mechanism has been part of the MPF scheme since it was introduced in December 2000. The scheme covers more than 2.6 million employees and 232,000 self-employed people with assets worth HK$1.12 trillion (US$143 billion) as at the end of March.
Under the scheme, employers and employees each contribute 5 per cent of the individual’s salary up to a combined maximum of HK$3,000 a month.
The controversial offsetting mechanism has drawn criticism that it is tantamount to robbing employees of their hard-earned money as it has allowed employers to take cash from workers’ pensions to offset their long-service and severance payments.
Last year, over HK$6.6 billion was offset in the employees’ pension funds, up 16.6 per cent from HK$5.7 billion in 2020.
In 2017 in his last year in office, former chief executive Leung Chun-ying attempted to push forward a proposal to abolish the mechanism, but to no avail due to strong resistance from the business sector.