Mandatory Provident Fund (MPF)

Hong Kong business leaders band together to oppose scrapping MPF offsetting mechanism 

The latest government proposal to prevent employers from dipping into pensions suffers a setback after major business groups voice opposition

PUBLISHED : Monday, 30 April, 2018, 10:03am
UPDATED : Monday, 30 April, 2018, 6:20pm

Five major Hong Kong business groups have joined forces to demand greater subsidies in any plan that would stop them from dipping into pensions, the latest blow to efforts to end the so-called offsetting mechanism in the city’s government-mandated provident fund.

Business leaders want the government to make a longer financial commitment – with one suggesting HK$37.5 billion (US$4.8 billion) over 15 years – and remove all administrative burden from owners in a proposal to cancel the mechanism, which allows employers to withdraw cash from the fund to offset long-service or severance payments to workers. 

If not, they warned they would refuse to support the proposal to scrap the mechanism, which has left workers with a much smaller nest egg after a staggering HK$31.8 billion of contributions have been offset since the Mandatory Provident Fund came into place in 2000.

If the proposal fails to get the endorsement of the Labour Advisory Board, with half of its members from the business sector and the other half from the labour sector, it is expected to go back to the drawing board despite a goal to finalise it this year and get Legislative Council approval before 2020.

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“The government should make a long-term financial commitment,” Employers’ Federation of Hong Kong CEO Louis Pong Wai-yan said. “It’s unfair to ask the employers to solely bear this financial responsibility. The government has its fair share of responsibility too.

“It’s like a couple forming a family and raising a kid. You can’t just pay alimony for a period of time and then walk out for good.”

Groups that voiced their opposition were the employers federation, the Hong Kong General Chamber of Commerce, the Chinese General Chamber of Commerce, the Chinese Manufacturers’ Association of Hong Kong and the Federation of Hong Kong Industries. 

Under the latest proposal, employers will need to set up a savings account and contribute 1 per cent of employees’ wages to cover payments, which will amount to HK$6 billion a year across all sectors. It would be capped at 15 per cent of a worker’s total wage.

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To offset initial costs to employers, the government said it will set aside HK$17.2 billion over 12 years – more than double the HK$7.9 billion proposed by former chief executive Leung Chun-ying to subsidise employers for 10 years. The subsidy scheme will be rolled out as a complex, two-tiered system under which the government will offer a 50 to 75 per cent subsidy for the first three years. From the fourth year onwards the subsidy percentage will be decreased gradually until it falls to less than 10 per cent in the 12th year.

The chamber leaders criticised the proposal for imposing a heavy burden on small and medium-sized businesses.

Irons Sze Wing-wai, Chinese Manufacturers’ Association permanent honorary president, said many small and medium businesses were worried they would not be able to afford the payment when the subsidy ends.

“What is our burden after 12 years? This is open-ended and nobody can give us a picture. For small businesses with cash flow problems, it will be a big problem,” he said. 

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The government projected that in the 20th year after the offsetting system was removed, businesses with fewer than 10 employees would pay an additional HK$219,000 to cover long-service and severance costs.  

Sze argued the need for severance payments would arise when a firm ran into financial difficulty so the government should take responsibility for safeguarding employees’ job welfare. 

Pong agreed, saying: “The government is financially capable of making greater financial support but the matter now is whether it is willing to.”

Federation of Industries chairman Jimmy Kwok Chun-wah criticised the two-tiered system as too complicated for businesses to comprehend. 

“Under the proposal the number of savings accounts will reach 280,000 with each firm managing its own account. The administrative fee will be costly and the work will take up a lot of time,” he said. 

He suggested the employers’ contribution be made to the employee’s MPF account and the government take up all the administrative work. 

General Chamber of Commerce CEO Shirley Yuen also floated an idea of asking the government to commit about HK$37.5 billion over a period of 15 years and offer interest-free loans. 

The chambers of commerce said they still needed to work out a unified counterproposal to the government’s plan. 

Meanwhile, Secretary for Labour and Welfare Dr Law Chi-kwong, who has been at the forefront of lobbying efforts for the proposal, said on Sunday the government would continue to consult employers and employees through next month.

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Speaking at a public event, Law said the business sector was concerned with the support for small and medium-sized businesses, while the labour sector was concerned if there was “room for improvement” in terms of severance and long-service payments.

“We still have time to consult other chambers of commerce and unions. I believe the work will continue until mid-May, or even late May. There will be no conclusions in the early stages.”