Prac­ti­cal ways to make the MPF scheme work bet­ter

Ho Lok-sang out­lines some sen­si­ble ways to make Hong Kong’s old-age pen­sion sys­tem more ef­fec­tive and fairer — in par­tic­u­lar how to re­solve the MPF long-ser­vice pay­ment off­set is­sue

China Daily (Hong Kong) - - COMMENT -

Early this year I wrote an ar­ti­cle in this col­umn, “Mak­ing life bet­ter for HK’s work­ers” (Jan 16, 2016). In this ar­ti­cle I made three pleas. One was for a law on max­i­mum work­ing hours in­stead of stan­dard work­ing hours; an­other for a universal pen­sion plan con­tro­versy. The last was for the MPF off­set mech­a­nism; I pro­posed that the govern­ment should sim­ply pay work­ers what had been off­set with a longser­vice pay­ment.

The MPF long-ser­vice pay­ment off­set refers to per­mis­sion for em­ploy­ers to give em­ploy­ees the cu­mu­la­tive Manda­tory Prov­i­dent Fund con­tri­bu­tions so as to honor their long-ser­vice pay­ment obli­ga­tions. As a re­sult, those em­ploy­ees who are af­fected will have smaller MPF pay­ments to col­lect when they re­tire. Ob­vi­ously, this will un­der­mine the pro­tec­tion the MPF is sup­posed to of­fer em­ploy­ees.

Al­though it may not sound right, this ar­range­ment was promised by the govern­ment to em­ploy­ers when the MPF was pro­posed. At the time, it re­duced em­ploy­ers’ re­sis­tance to the MPF scheme be­cause of their added con­tri­bu­tions. It there­fore made it pos­si­ble for the scheme to be launched in 2000.

There is no of­fi­cial ac­count of how the govern­ment is go­ing to tackle the MPF off­set is­sue. But ac­cord­ing to some re­ports, it will stop al­low­ing MPF off­sets from a cer­tain date. Af­ter this date, the govern­ment will of­fer some re­lief to em­ploy­ers who will have to set aside ex­tra funds to meet the sev­er­ance pay­ments. This re­lief will grad­u­ally be phased out. Ac­cord­ing to th­ese re­ports, the for­mula to cal­cu­late longser­vice pay­ments will be amended; em­ploy­ers will need to pay 1/2 in­stead of 2/3 of an em­ployee’s fi­nal month’s salary, mul­ti­plied by the num­ber of years of ser­vice. The long-ser­vice pay­ment ap­plies if some­one has been in con­tin­u­ous em­ploy­ment with the same em­ployer for five years or more. It also ap­plies if some­one is made re­dun­dant, dies, or is forced to leave be­cause of health rea­sons or the ex­piry of their work con­tract.

While I wel­come the govern­ment’s The au­thor is dean of busi­ness at Chu Hai Col­lege of Higher Ed­u­ca­tion. ini­tia­tive in par­tially “pick­ing up the tab” I am dis­ap­pointed that the pro­posal is in­ad­e­quate and has some un­pleas­ant im­pli­ca­tions for both work­ers and em­ploy­ers. The plan is ob­vi­ously de­signed to re­duce the bur­den on the public cof­fers, but the ben­e­fits are not worth the so­cial cost. This is be­cause of its un­fair­ness, ar­bi­trari­ness, and the ero­sion of trust. The for­mula which will be used to cal­cu­late longser­vice pay­ments will be detri­men­tal to the in­ter­ests of work­ers.

The govern­ment may think this is ac­cept­able to work­ers, be­cause it is bet­ter than hav­ing the MPF sav­ings “washed out” in or­der to col­lect longser­vice pay­ments. It may also be­lieve that the par­tial sub­sidy of­fered by the govern­ment to re­duce the bur­den of em­ploy­ers and the phas­ing out of a sub­sidy over per­haps as long as 10 years will make it ac­cept­able to em­ploy­ers.

I would ar­gue that the ben­e­fits in terms of sav­ings to the govern­ment are small and un­nec­es­sary while the cost is also con­sid­er­able. The ef­fect will be so­cially di­vi­sive. If the govern­ment bears the costs com­pletely, and seeks to fi­nance it through other means, this will please em­ploy­ees and em­ploy­ers. We would there­fore have more so­cial har­mony.

But the cur­rent pro­posal is di­vi­sive be­cause the ar­bi­trary cut-off date will dis­ap­point many work­ers. The sys­tem for long-ser­vice pay­ment has been in use since 1986, when it was in­tro­duced un­der the Em­ploy­ment Ordinance. Be­cause of its 30-year his­tory, wa­ter­ing it down just to get the ap­proval of em­ploy­ers is un­ac­cept­able. This is be­cause peo­ple ex­pect that things will get bet­ter — not worse. In any case most of the peo­ple who re­ceive longser­vice pay­ments are less for­tu­nate work­ers. Hong Kong should give such peo­ple more sup­port, es­pe­cially when they have proven to be good work­ers and have stayed with the same em­ployer for five years or more.

Ac­cord­ing to the MPF Schemes Au­thor­ity, from July 2001 to the end of 2015, about HK$28 bil­lion of MPF funds has been “washed away” by the off­set mech­a­nism. More­over, those with monthly salaries of less than HK$7,100 do not make con­tri­bu­tions and are left only with the con­tri­bu­tions of their em­ploy­ers. There­fore, when em­ploy­ers’ con­tri­bu­tions are “washed away” th­ese work­ers will end up with noth­ing.

The cu­mu­la­tive amount of HK$28 bil­lion over the years is only a frac­tion of the money given away by the govern­ment in a sin­gle year re­cently. It is true that with all our new com­mit­ments we need to be care­ful about our fis­cal spend­ing. But the govern­ment has promised em­ploy­ers that they were al­lowed to off­set long-ser­vice pay­ments with MPF con­tri­bu­tions. Keep­ing this prom­ise will build trust in the com­mu­nity. But most of us agree that the off­set mech­a­nism is so­cially dam­ag­ing to work­ers. They should be al­low to keep pay­ments that they de­serve. I think that the govern­ment is morally bound to bear the full cost in­stead of hag­gling about things. It is time to al­low so­ci­ety to move for­ward.

While I wel­come the govern­ment’s ini­tia­tive in par­tially ‘pick­ing up the tab’ I am dis­ap­pointed that the pro­posal is in­ad­e­quate and has some un­pleas­ant im­pli­ca­tions for both work­ers and em­ploy­ers. The plan is ob­vi­ously de­signed to re­duce the bur­den on the public cof­fers, but the ben­e­fits are not worth the so­cial cost.”

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