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2014/03/11
Abolishing MPF Offsetting Arrangement will Harm Business Environment

For Immediate Release

The Hong Kong General Chamber of Commerce (HKGCC) urges the Government to deal with calls to abolish the mechanism to offset severance payments or long service payments by employers under the Mandatory Provident Fund (MPF) system very cautiously. The Government must avoid imposing any additional burden on SMEs, who are already struggling to deal with soaring operating costs, and also ensure it does not harm Hong Kong’s business environment.

In its submission today to the joint meeting of the Panel on Financial Affairs and the Panel on Manpower of the Legislative Council, the Chamber presented the business sector’s views on offsetting severance payments or long service payments against accrued benefits derived from employers’ contributions made to employees’ MPF accounts.

Before the MPF system came into operation, the Employment Ordinance already allowed employers to use their contributions to retirement schemes to offset severance payments or long service payments.  The decision to adopt this long-established offsetting arrangement into the MPF system was made after extensive consultations and consideration of all relevant factors. 

“There are diverse views on the offsetting arrangement among different quarters in the community. However, given the current unfavourable operating environment and the external economic uncertainties, abolishing a policy without extensive consultation or evaluating the possible consequences has many risks. It could also undermine Hong Kong’s long-term economic development,” said HKGCC Chairman C K Chow.

The business community opposes abolishing the offsetting mechanism. “Abolishing the offsetting arrangement will impose a double burden on employers, because they will have to find additional funds to pay for long service and severance payments,” said Chamber CEO Shirley Yuen.  “Given the rapidly rising operating costs, such a move would put severe financial pressure on businesses.”

The 300,000-odd SMEs in Hong Kong currently account for more than 98% of local businesses. They hire about 1.2 million employees, which is equivalent to about 47% of total employment in Hong Kong (civil servants excluded). 

“Given the difficult external economic environment, as well as the never ending introduction of new regulations coming into effect, such as the Competition Law, and Trade Descriptions Unfair Trade Practices, many SMEs have severe cash constraints and are struggling to survive. Abolishing the offsetting mechanism will be a double blow to them, and some SMEs may be forced to close down,” said Yuen.

The MPF system was introduced in December 2000. Between July 2001 and June 2013, companies’ MPF contributions used to offset severance and long service payments exceeded HK$20.7 billion.  Since 2009 alone, this amount has exceeded HK$2 billion annually. This clearly shows abolishing the offsetting mechanism would have a huge financial impact on businesses.

The Chamber is particularly concerned about SMEs.  For example, if two long-serving staff retire from a company, the maximum long service payment each could receive would be HK$390,000, explained Yuen. Therefore, if the offsetting arrangement were abolished, the company would have to pay HK$780,000 in total, which would be unbearable for many SMEs.

Given the Government’s projections for an ageing population, it should be extremely cautious about making any changes to the MPF system. The Government should conduct a comprehensive consultation on the issue, instead of singling out the offsetting mechanism for adjustment.

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Media inquiries: Please contact Deanna Kwok at 28231255/[email protected]

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