While the Chamber recognizes the need to review the MPF system and enhance employees’ retirement protection, the latest proposal put forward by the Government on the abolition of MPF offsetting has caused serious concern.
The most worrying aspect of the proposal is that it shifts the entire responsibility for severance and long-service payments (SP/LSP) onto employers, 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.
The Government’s proposal includes a pledge of $17.2 billion for a “subsidy scheme” for the first 12 years of the plan. However, the total contributed by businesses during the same time frame is expected to total some $67.2 billion – not to mention the out-of-pocket expense to cover any shortfall for some employers. From the 13th year onwards, employers are still required to contribute to the account depending upon circumstances.
Saying that the Government “subsidizes” the business sector is a misnomer, as the Government should also have an unshirkable obligation in retirement protection.
The Government’s requirements are actually far beyond the means of many SMEs, and 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 will remain insufficient – short a hefty $306,000 on average. The corresponding figures for SMEs are a whopping 44% and $219,000.
On top of that, the calculations involved in the new proposal are complicated and the administrative procedure is cumbersome and costly.
Using the Government’s proposal as a framework, we have initially proposed two amendments on the subject.
(1) As in the Government’s plan, employers will contribute an extra 1% of monthly relevant income of employees to a designated account, with a 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 will cover the shortfall with a temporary interest-free loan for businesses. Subsequent employer contributions will be used to pay back the Government loan first, before saving for future SP/LSP payments.
These changes have several key advantages. Firstly, the burden of paying for SP/LSP falls equally on employers and the Government. And, according to the Government’s calculations, since 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 would total $84 billion.
The above suggestions are also easier to understand, and 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, our suggestions can only be considered as some initial thoughts. 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.