Chamber in Review
Abolition of MPF Offsetting Requires Shared Responsibility
Abolition of MPF Offsetting Requires Shared Responsibility

Secretary for Labour and Welfare Dr Law Chi-kwong visited the Chamber on 30 April to discuss the proposed abolition of the offsetting mechanism for severance and long-service payments (SP/LSP). The Chamber recognizes the need to review the MPF system and enhance employees’ retirement protection. Retirement protection is clearly a matter for employers, employees and Government to address together. The Government's latest proposal on abolishing the MPF offsetting, however, places the responsibility predominantly on employers.  

Speaking after meeting with the Secretary, Chamber Chairman Stephen Ng said: “Retirement protection should be a shared responsibility, and employers are willing to bear more, but the Government’s latest proposal leaves too many problems unaddressed. The Government said it would contribute $17.2 billion over 12 years. However, the extra 1% of monthly relevant income of employees that businesses will have to put into a designated saving account for SP/LSP payments over the 12-year period will total some $67.2 billion.” 

On top of that, employers will have to cover any shortfall. Chamber CEO Shirley Yuen pointed out the Government admits that the costs are beyond the ability of many SMEs to pay. 

“Its own figures also show that in the 20th year after implementation, 21% of employers’ accounts will remain insufficient – short a hefty $306,000 on average,” she said. “It also forecasts that after 20 years, only 56% of SMEs with less than 10 employees will have adequate funds in the account.” 

A more practical option would be for employers to contribute 1% to the designated account, with a ceiling of 15% of annual payroll, which is the same as in the Government’s proposal. 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. 

SMEs with insufficient savings in the account could cover the shortfall via a temporary interest-free loan from the Government, which would be automatically repaid with subsequent employer’s contributions. 

The added advantage of this option, according to the Government’s calculations, is that contributions would be finite, because both the Government's and employers’ contributions would stop once the account reaches the 15% ceiling. 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. 

“This approach would be also easier to understand, create relief, be easier to implement and remove uncertainty for SMEs as it will not require out-of-pocket expense to cover any shortfall,” said Ng. “We are not saying this is a foolproof solution, as we have limited data from the Government, but we believe that it will allow more SMEs to survive the transition.”


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