ExCo endorses proposal to abolish MPF offset

The Executive Council on Friday approved the proposal to abolish the offsetting of severance and long-service payments with Mandatory Provident Fund (MPF) contributions.

Under the proposal, abolition of the MPF offset mechanism should not be retroactive. A “cut-off ” date to abolish the MPF offsetting mechanism will be determined in due course. Employ- ers will be able to offset before the “cut-off ” date takes effect.

The amount used to calculate employees’ compensation will be reduced from twothirds of an employee’s monthly pay to half.

In a 10-year transition period, the government will allocate HK$7.9 billion to share employers’ burden when making severance or long-service payments after abolishing the MPF offset mechanism.

After the offset mechanism is scrapped, the government will collect HK$18 billion less tax over the 10-year transition period. Taken together with the HK$7.9 billion subsidy, the price tag for the government would total HK$25.9 billion.

“In the last couple of weeks, the business sector and labor organizations have focused their viewpoints in the discussion process, making the discussion momentum more interactive and constructive,” Chief Executive Leung Chunying said when announcing the ExCo decision on Friday.

“We have informed Chief Executive-designate Carrie Lam Cheng Yuet-ngor of the decision and it is up to the dis- cretion of the incoming government to implement or modify the proposal,” Leung said.

In his final Policy Address in January, Leung pledged to dismantle the MPF offset mechanism that lets employers offset employees’ long-service and severance payments by deducting from their contributions to employees’ MPF accounts. The offset mechanism came into effect when the MPF scheme was launched in 2000, having been agreed in order to win business sector backing for the MPF.

The main argument against the MPF offset mechanism is that the pension scheme is intended to provide employees with financial security after their retirement. The offset can seriously reduce funds available to employees on reaching retirement.

“We take the view that the MPF offset mechanism should be abolished as soon as possible,” said Matthew Cheung Kin-chung, chief secretary for administration. “The proposal has balanced the interests of employers and employees.”