EMPLOYMENT AND RETIREMENT SCHEMES LEGISLATION (OFFSETTING ARRANGEMENT) (AMENDMENT) BILL 2022
MR CHAN CHUN-YING (in Cantonese): Deputy President, two years before Hong Kong’s return to the Motherland, the Mandatory Provident Fund Schemes Ordinance (“the Ordinance”) was passed, which allowed employers to offset long service payments (“LSP”) and severance payments (“SP”) with their portion of MPF contributions. Since the Ordinance became effective in 2000, nearly $100 billion of MPF contributions for wage earners have been offset, triggering widespread criticism in society.
In order to quell the controversy, the current-term Government, with strengthened resolve, has repeatedly enhanced the proposal for addressing the problem in connection with the abolition of the offsetting arrangement, and plans to implement it in 2025 when the eMPF Platform will come into full operation.
The preliminary idea put forward by Chief Executive Carrie LAM in 2018 was to provide a 12-year two-tier subsidy scheme for enterprises, involving $17.2 billion, and to restore the SP/LSP rate to two thirds of employees’ monthly wages. After repeated discussion, the subsidy amount for enterprises has been further increased to $33.2 billion and the period of second-tier subsidy has been extended to 25 years. The Government will make up for the shortfall in case employees receive a smaller amount of aggregate benefits than what they would otherwise receive under the current offsetting regime. The various enhancement arrangements demonstrate the Government’s determination to solve this problem that has plagued us for many years.
However, from an economic and business perspective, we should know that MPF is one of the most important operating costs, especially for start-ups and small- and medium-sized enterprises (“MSMEs”). In earlier years, in order to secure support from the business sector for the MPF system, the Government proposed to allow employers to offset LSP and SP with their portion of MPF contributions.
Since the introduction of MPF, we have heard divergent views from the community. The labour sector holds that MPF is meant to meet the needs of retirement life whereas SP and LSP are used to cope with the urgent needs of the unemployed people upon dismissal by their employers. Therefore, the two should not be confused. Meanwhile, the business sector reiterates that offsetting SP and LSP with MPF contributions is a long-standing practice. It was precisely because at that time the Government agreed that there were some overlaps between SP/LSP and MPF, the offsetting arrangement was put in place so that employers need not bear double expenses.
However, the abolition of the offsetting arrangement will not only defeat the original intention of setting up MPF, but also renege on the promise made by the Government to the business sector when it introduced MPF. Therefore, only if the Government can provide subsidy for a longer period and make a greater financial commitment can it realize its moral responsibility to the business sector. Moreover, after the passage of this Bill, the Government should continue to review and study whether there is really any overlap in the functions of LSP and MPF.
In any case, I believe the subsidy scheme launched by this Government will, to a certain extent, be able to solve the problem with the MPF offsetting arrangement which has beleaguered enterprises, especially MSMEs, for years and will strike a balance between the interests of the business sector and those of the labour sector. Moreover, it will also facilitate the continued operation of local businesses and encourage employees to concentrate on their works.
The basic concept of the MPF system in Hong Kong is for working people to make personal savings through contributions from themselves and their employers, and earn returns through investment fund tools, so as to meet the needs of their post-retirement life. Before the MPF system was introduced, only about one third of the working population in Hong Kong had retirement protection, following the introduction of the system, about 85% of the working population now have retirement protection.
Nevertheless, many members of the public are of the view that under the existing MPF system, some people, especially the poor, cannot be provided with adequate income security.
MPF is a savings system operated through individuals’ dedicated accounts. The amount of pension accrued at the end depends on the income and contribution period of the elderly concerned before retirement. Therefore, the poverty situation of the working poor will endure even after their retirement.
In view of the burden of contributions on low-income employees, the current MPF system sets a minimum income level of $7,100, which means that the contribution of employees with a monthly income of less than $7,100 is only 5% of their monthly wages, showing that the poorer the workers are, the lower the accumulated benefits they can receive.
Under the MPF scheme in Hong Kong, the amount of contributions you can withdraw at the time of retirement all derives from the amount of money you contributed while working. Deputy President, in the Mainland, what is similar to MPF is the so-called pension, which comes from the employees’ contributions under the “endowment insurance” before their retirement. This is part of the commonly known “five social insurance and one housing fund”. The contributions to the “endowment insurance” are jointly borne by employers and employees and are collected by local taxation authorities. Retirees who have made contributions for a total of 15 years by the time they reach the statutory retirement age can receive a basic pension on a monthly basis until their death. The pension payments will be adjusted in line with price changes and economic growth. As of last year, the pensions for Mainland retirees have increased for 17 consecutive years, with a growth rate of up to 4.5% last year. At present, the average amount of pension for enterprise workers in the Mainland has reached about RMB3,000 per month.
In the meantime, Mainland enterprises are required to pay economic compensation which is similar to SP when they dissolve labour contracts. Moreover, employers will not be exempted from paying the economic compensation as a result of their contributions to the endowment insurance. Comparing the two retirement protection systems, it seems that the protection for Mainland retirees is more precise and adequate than that in Hong Kong.
As regards the current situation in Hong Kong, the vast majority of employees only have MPF and personal savings as their medical and retirement protection. With the increasing average life expectancy of the public, although it has not yet reached the age of 100 as some people say, the level of MPF contributions is so low that retirement protection is indeed quite limited. The cost of living in Hong Kong is now one of the highest in cities around the world. It is conceivable that in the next decade or two, the enormous pressure on society for healthcare, elderly care and retirement protection brought about by an ageing population will keep growing.
With the concern of the two Chief Executives and endeavours made by the two terms of Government, as well as years of coordination between employers and employees, this issue, which has been discussed in the community for more than 20 years and has affected the retirement protection of thousands of employees, can be said to have been resolved. Therefore, I support the passage of this Bill.
However, in developed economies, universal retirement protection is regarded as the most basic right of citizens and performs the function of stabilizing society. Of course, Hong Kong still does not have the conditions for implementing a high standard of universal retirement protection, but after the Government has solved the problem with the offsetting mechanism, we hope that it will conduct a timely and comprehensive review of Hong Kong’s retirement protection system, so that low-income people who are not covered by MPF can also enjoy a minimum level of retirement protection and share the fruits of Hong Kong’s economic development.
I so submit. Thank you, Deputy President.