Mandatory Provident Fund (MPF)

Hong Kong leader Carrie Lam pledges decision ‘as soon as possible’ on ending MPF offset scheme

Chief executive says mechanism has been undermining the benefits of retirement protection for employees

PUBLISHED : Tuesday, 27 March, 2018, 12:43pm
UPDATED : Tuesday, 27 March, 2018, 10:51pm

Hong Kong leader Carrie Lam Cheng Yuet-ngor has promised to make a decision “as soon as possible” on stopping employers from dipping into workers’ pension funds for severance and long-service payments.

The chief executive said on Tuesday the controversial Mandatory Provident Fund (MPF) offsetting mechanism had been undermining the benefits of retirement protection for employees, which was supposed to be “the very purpose of setting up” the scheme.

Plans to scrap it have been in the works for years, and in announcing his budget last month, Financial Secretary Paul Chan Mo-po said the administration would commit HK$15 billion (US$1.9 billion) to the move. Several days later, welfare chief Dr Law Chi-kwong said the amount could be more than HK$15 billion and the government would consult major stakeholders to come up with a proposal acceptable to those involved as soon as possible.

The Executive Council would reportedly discuss officials’ proposal to increase to HK$17.5 billion its subsidies for companies to wean themselves off dipping into workers’ pension funds.

Lam declined to comment on the reports in a media briefing before the Exco meeting on Tuesday, but she said the offsetting issue had been “argued over in Hong Kong for a long time”.

“I can promise you that we will do it as soon as possible ... as it is time to make a decision on changing the system to do away with the offsetting arrangement. It will offer better protection for retirees. We want to build a consensus so that this could be done.”

‘More than HK$15 billion’ may be spent to scrap MPF offset mechanism, Hong Kong welfare chief says

Of the business sector’s fierce opposition, Lam said her administration would “try our very best to convince the employer groups and the business chambers that this offsetting feature is actually undermining the very purpose of setting up a Mandatory Provident Fund, which is to preserve the benefits for the retirement protection for employees in Hong Kong”.

The chief executive alluded to the earmarked HK$15 billion in claiming the government had showed “the needed political resolve to address this issue”.

“I hope that we will be able to convince the employers.”

Employers were quick to respond. Bosses’ representative Irons Sze Wing-wai, of the Chinese Manufacturers’ Association of Hong Kong, described Lam’s comment on persuading them as inaccurate.

“The employers have already made great compromises,” Sze said, adding that they had earlier proposed to increase monthly contributions by 1 per cent in exchange for keeping the offsetting mechanism but that the idea had been shot down.

Sze hinted that employers wanted to see officials provide subsidies over a longer period of time. “If employers have to commit long-term, why doesn’t the government?”

After 13 months of gains, Hong Kong MPF slips by 2.94 per cent

Unionist Bill Tang Ka-pui, an employee representative on the Labour Advisory Board, said he was optimistic that officials had drawn up a substantial plan and the labour sector would likely accept a proposal that did not involve changing the current formula of calculating severance and long-service payments. The Federation of Trade Unions member added that he hoped relevant legislation could be completed within this legislative year.

It has been reported that as part of the government’s latest proposal, it would ask employers to stump up an additional 1 per cent of employees’ salaries to be stashed away into a separate fund that it could tap as it doles out subsidies.

The MPF scheme, launched in 2000, now provides pension coverage for 2.8 million of Hong Kong’s employees and self-employed residents.

‘Scrap MPF offset mechanism now or expect no change in Hong Kong status quo’

The compulsory fund compels employers and their staff to each contribute 5 per cent of their staff salaries to a fund managed by any one of 14 service providers selected from banks, insurers and fund managers. Employees can decide how to allocate the contributions into different investments in equities, bonds or money-market products and can only withdraw the amount when they retire or leave the city permanently.

The offsetting clause was designed to rally support from the business sector for the scheme. It allowed companies to withdraw funds from employees’ MPF accounts and use that as severance or long-service payments.

Some HK$3.85 billion was offset by employers in 2016 – up a staggering 70 per cent from HK$2.27 billion in 2012. According to the Mandatory Provident Fund Schemes Authority last year, about HK$31.8 billion was offset from workers’ funds in a 15-year period.

Labour unions have fiercely criticised the scheme, saying it compromises peoples’ retirement savings.

Another suggestion in the proposal pending Executive Council discussion is to keep the original formula of calculating compensation payouts at two-thirds of monthly salary multiplied by a figure corresponding to the employee’s length of service, instead of reducing the first figure to half a month’s pay.

The Exco led by former chief executive Leung Chun-ying earlier backed a HK$7.9 billion proposal to tide businesses over a 10-year period.

With Lam’s administration committing a larger amount to the cause, it is likely the subsidy period will stretch more than 12 years.

Additional reporting by Sum Lok-kei