The Legislative Council’s passage of a long-awaited bill on Thursday that stops bosses from raiding employee pensions to cover severance and long-service payments has been trumpeted as a milestone for labour rights by some unions, but critics warn the amended law is a pyrrhic victory at best. They argued abolishing the so-called offsetting mechanism under the Mandatory Provident Fund (MPF) in 2025 was a step in the right direction but it came with very limited pension benefits for workers and too many favours and concessions to the employers. The mechanism, branded by unions as tantamount to robbing workers of their hard-earned money, will be scrapped in 2025 following the passage of the Employment and Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Bill in Legco. It signalled an end to a decade-long tussle between employers and unions over the issue. Nelson Chow Wing-sun, emeritus professor at the social work and social administration department of the University of Hong Kong, noted 37 per cent of the city’s 3.77 million workers were 50 or older and would not benefit much as many of them had already had their pensions “eaten away with nothing much left”. Chow added that only workers in the 20s could truly benefit from the new arrangement, which he said would only partially restore labour rights and retirement benefits under a three-year transition period and non-retroactive condition. “This is a pyrrhic victory … There won’t be a significant improvement in the city’s retirement protection in the next 10 years as the move only righted a decades-long wrong done to the city’s employees,” Chow told the Post . “The damage is done. I don’t think any employee is particularly happy about scrapping the offsetting mechanism as many, especially aged 50 or above, have seen a large portion of their pensions being eroded by offsetting.” The mechanism has been part of the MPF scheme since it was introduced in December 2000. The pensions cover more than 2.6 million employees and 232,000 self-employed people with assets totalling HK$1.12 trillion (US$143 billion) at the end of March. Employers and staff are required to each contribute the equivalent of 5 per cent of a worker’s monthly salary to the pension fund, capped at a combined HK$3,000. Why the Hong Kong government is due to scrap the MPF offsetting mechanism The offsetting mechanism was introduced as a compromise to the city’s disgruntled business sector in exchange for its support for the MPF scheme, a move Chow labelled a historical wrong. “This was only a political compromise to appease the business sector, which was reluctant to dish out money to pay for their staff’s retirement benefits,” he said. It allows employers to use money earmarked for pension funds to offset severance and long-service payments, or when staff are sacked or the company has closed down, an arrangement seen to favour bosses. Official data showed that between July 2001 and the end of September last year, a total of HK$56.7 billion was offset in employees’ pension funds in the city. Last year, the amount was more than HK$6.6 billion, involving 63,900 employees, up 16.6 per cent from HK$5.7 billion in 2020. Former chief executive Leung Chun-ying attempted to push forward a proposal to abolish the mechanism in his last year in office in 2017, but to no avail due to strong resistance from the business sector. In her policy address in 2021, Chief Executive Carrie Lam Cheng Yuet-ngor announced her administration would submit a bill to abolish the mechanism this year with an increased commitment of HK$33.2 billion in subsidies over 25 years to help employers cover the payments. This was more than four times the HK$7.9 billion proposed by Leung to subsidise employers for 10 years. For most workers, the reality has sunk in that their MPF savings are not enough for retirement. As at the end of last year, the average pension pot was HK$258,000. While the labour sector has called the passage of the law a win for employees, companies have cried foul over the additional financial burden. MPF faces ‘extreme volatility’, members lose HK$16,600 each in first quarter Martin Chan Keung, owner of Fresh Seafood Restaurant in Tsim Sha Tsui and four others that employ about 70 staff, said the burden would be too much for him as he needed to come up with extra money as a reserve to cover severance and long-service payments. “It is unreasonable and difficult for us. We have been suffering from a cash flow problem and have taken bank loans amid the pandemic,” he said. “If we can earmark surplus money for the staff’s future severance or long-service payments, why don’t we use this money to rescue our business now?” Chan added the new law might create an unfair situation for employers where some workers might deliberately do something to prompt the management to sack them so they can obtain severance or long-service payments. Felix Lam, founder and creative director of video production firm Visual Media with 23 staff, agreed, saying the move made the life of small and medium-sized enterprises (SMEs) already hit hard by the Covid-19 pandemic more difficult. “Many SMEs have been struggling to survive. For me, I only earn a marginal profit now, but if I need to earmark a sum of money for the staff’s future severance and long-service payments, my company may fail to make any profit,” he said. Lam admitted he might review his company’s appraisal system for those approaching five years in the job, after which they can be entitled to a long-service payment. “I may make the assessment more stringent to make sure only the high performers can stay and enjoy the long-service benefits. Otherwise they’ll have to go,” he said. Chow also warned that employers could take advantage of the three-year transition period before the law took effect by sacking staff or changing their contracts to evade payments in the future. “The new law has given too many concessions to the employers and will create fears among workers that they might be sacked before it takes effect in 2025,” he said. The abolition of the offsetting arrangement will have no retroactive effect. If a worker’s employment commenced before the transition date but the individual is laid off after that, the employer can still claw back contributions to the staff member’s pension to cover severance payments based on the number of years worked before the date in question. Digitised Hong Kong pension scheme to save members billions in fees Leung Tsz-yan, organiser of the Cleaning Workers Union, agreed that doing away with the offsetting mechanism did not do much in enhancing retirement protection for employees, arguing that many flaws in the pension system needed to be resolved to safeguard retirement benefits, such as a lack of investment choices, low returns and high administrative fees. “Many cleaning workers can’t benefit from this new legislation as their bosses change their contracts every two years,” she said. “Without the retroactive effect, the majority of the city’s workers still face the risk of having their pensions offset.” She insisted that only a universal pension scheme, an idea dismissed by Carrie Lam years ago, could provide full retirement protection for workers.