MPF offset abolition ‘to be decided this year’

Chief Secretary for Administration Matthew Cheung Kin-chung said he is confident a solution to the controversial issue of abolishing the offsetting of severance and long-service payments with Mandatory Provident Fund contributions will be found by the end of the year.

Cheung, who spoke at a media briefing on Wednesday, said the proposal to abolish the MPF offsetting mechanism, put forward by former chief executive Leung Chunying late last month would be fine-tuned.

“The modification is to increase the government’s subsidies on firms during the 10-year transition period. This is because it is vital to help small and medium enterprises to have enough savings to pay for severance and long-service payments once the MPF offsetting mechanism is scrapped,” Cheung explained.

“Besides the HK$7.9 billion subsidy, the government is bound to allocate more public funds to share employers’ burden in the transition period. The government will get opinions from related parties regarding the exact amount of public funds that should be allocated,” he added.

Under Leung’s proposal, abolition of the MPF offset mechanism should not be retroactive. A “cut-off ” date to abolish the mechanism will be determined in due course. Employers 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 salary to half. At present, severance and longservice payments are both calculated by taking two-thirds of an employee’s last monthly salary and multiplying it by years of service.

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.

The government estimates HK$18 billion less tax will be collected over the 10-year transition period after the MPF offsetting mechanism is abolished. Taken together with the HK$7.9 billion subsi- dy, the original price tag for the government will be HK$25.9 billion.

Employers and employees in Hong Kong are both required to contribute an amount equal to 5 percent of workers’ monthly wages — capped at HK$1,500 — to MPF accounts.

Last year HK$3.85 billion was offset by employers — up a staggering 70 percent from HK$2.27 billion in 2012, according to MPF Schemes Authority data.

The offset mechanism came into effect when the MPF scheme was launched in 2000 as a private-run retirement savings pillar for Hong Kong. The offset mechanism had been agreed in order to win business-sector backing for the retirement savings scheme.