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Government Has Responsibility and Ability to Share Burden of Retirement Protection

The Chamber agrees that a review of the current MPF system is necessary to enhance employees’ retirement protection, and that the business sector is willing to contribute more. However, the latest proposal put forward by the Government on the abolition of MPF offsetting has caused grave concern in the business community. The full implementation of the proposal will definitely have a severe impact on SMEs’ operations and could cause serious harm to the business environment in Hong Kong.

The most worrying aspect of the proposal is that the Government has high-handedly shifted the entire responsibility for severance and long-service payments (SP/LSP) onto employers, completely ignoring the fact that employers have already made their MPF contributions. Hong Kong businesses will be forced to bear double liability for their departing employees.

Under the Government’s proposal, $17.2 billion has been committed over 12 years to help businesses cover the costs. This “subsidy scheme” is of a two-tier, progressively declining proportion arrangement. Starting from the 13th year, the full burden falls on employers.

The Government also requires employers to contribute an extra 1% of monthly relevant income of employees to a designated savings account, until the account reaches a ceiling of 15% of annual payroll. This account will be used to pay SP and LSP.

The above proposal disregards the overlapping of some functions in LSP and MPF.

The Government may have pledged $17.2 billion, but the extra 1% contributed by businesses actually totals some $67.2 billion during the 12-year period, which is four times the Government’s commitment -- not to mention the out-of-pocket expense to cover shortfall for some employers. From the 13th year onwards, employers are still required to contribute to the account depending upon circumstances.

It must be emphasised that saying that the Government is “subsidizing” businesses is a complete misnomer as the Government should also have an unshirkable obligation in retirement protection.

The Government’s proposal is actually far beyond the means of many SMEs.

Even the Government admits that the costs are too arduous for many businesses to bear. Its own figures show that in the 20th year after implementation, 21% of employers’ accounts, i.e. one in five, will remain insufficient -- short a hefty $306,000 on average. The corresponding figures for SMEs are a whopping 44%, i.e. almost one in two, and $219,000 – a particularly heavy burden on SMEs that are struggling to survive.

The calculations involved in the new proposal are complicated and the administrative procedure is cumbersome and costly, making it difficult to comprehend.

Using the Government’s proposal as a framework, we have formulated some initial thoughts on the subject.

1) Following the Government’s plan, employers will contribute an extra 1% of employees’ monthly relevant income to a designated account, with the same ceiling of 15% of annual payroll. But when it comes to paying SP/LSP, the Government should bear half of the burden, with the rest coming from the employer’s account.

2) In case of insufficient savings in the account, the Government should cover the shortfall via a temporary interest-free loan. Subsequent employer contributions will be used to pay back the Government loan first, before saving for future SP/LSP payments.

These suggestions have several key advantages. Firstly, the burden of paying for SP/LSP falls on both employers and the Government. And, according to the Government’s calculations, since both the Government’s and employers’ contributions stop once the account reaches the 15% ceiling, the obligation to both parties is finite. Based on 2017 figures, in 15 years the total Government commitment would be some $37.5 billion while employers’ contributions to the designated account would total $84 billion, which is still double the Government’s commitment.

For the annual SP/LSP payments of approximately $5 billion, the Chamber suggests the Government and the business sector each shoulder half of the burden, i.e. $2.5 billion, which is equivalent to only 2% of the government’s budget surplus of $150 billion for the last fiscal year. This would help reduce the additional burden that SMEs have to bear and relieve the pressure on liquidity. The principle of shared responsibility would also be upheld as the Government and businesses share the responsibility of paying the additional costs for retirement protection.

The above suggestions are easier to understand, create relief and remove uncertainty for SMEs as they will not require out-of-pocket expense to cover any shortfall.

Given the limited figures available to the business sector, the Chamber’s suggestions can only be considered as some initial thoughts based on the framework of the Government’s proposal. Harmonious labour relations are key to Hong Kong’s success. Realising that employees are a company’s most precious asset, the business community is willing to shoulder a greater responsibility of employees’ retirement protection, and will continue to work with the Government to explore feasible and practical proposals. The final proposal should take into account the interests of employers, employees, Hong Kong’s economy and society at large.

Posted on 2018/05/02