Chairman's Message
Chairman's Message - Increasing MPF Contributions to Enhance Retirement Protection

Dr Jonathan CHOI Koon-shum (Chairman of the 50th terms of office) May 2017


The additional contribution of 1% by employers could already bring the amount to HK$5.3 billion, which significantly exceeds the requirement for benefits offsetting.


Controversies over the MPF offsetting mechanism have drawn much attention lately. Representatives of both employees and employers and the government have been maintaining close communication regarding their different views. Recently, CGCC and four other major chambers of commerce (“the Chambers”) agreed on a preliminary consensual proposal, in which we suggest directly increasing the contributions to employees’ MPF accounts. In addition to benefiting almost everyone in the working population, the operation of this proposal would also be simpler and easier to understand than the proposals put forward by other parties and the government, and at the same time increase employees’ retirement protection benefits.


A wider spectrum of protection

The Chambers proposed that employers and the government could each make an additional 1% contribution to the employees’ MPF accounts, so that the total monthly contribution to the MPF accounts could increase from the current 10% to 12%. Figures from the MPFA indicate that the MPF benefits withdrawn for offsetting amount to about HK$3 billion each year. According to our rough estimation, the additional contribution of 1% by employers could already bring the amount to HK$5.3 billion, which significantly exceeds the requirement for benefits offsetting.


Some suggest that if employers are willing to contribute more, why not put the same amount, together with the government’s capital or contribution, to the “fund pool” to arrange for severance payment and long service payment (“the two payments”)? We think that the “fund pool” can only benefit employees eligible for claiming “the two payments”. On the contrary, the Chambers’ proposal directly contributes to each employee’s MPF account, which would benefit close to 3 million employees in Hong Kong.


Furthermore, we are also concerned about the risks of poor management and misuse of the “fund pool”. In the long run, these could lead to deficits and affect the continuous operation of the fund. To a certain extent, the proposal of additional contributions by employers and the government could mitigate the public pressure to roll out a universal retirement protection scheme. It also offers more incentives to employment, thus alleviate the long-term shortage of labor in Hong Kong.


Clarifying functions of MPF and “two payments” and their relationship

Some members of the public have voiced their wish to maintain the arrangements and calculation method for “the two payments”. As a system that has been in use for a long time, “the two payments” and its relevant arrangements are something that employees and employers are both familiar with. We think that the system can be maintained, but the relationship amongst the different payments must be fully reviewed and clarified to prevent future disputes.


The Chambers propose that at the time of retirement or dismissal, the total amount of eligible “two payments” and MPF contributions by the employer could be computed, so that the higher of the two becomes the final eligible benefits. The full amount of these benefits must be retained in the employee’s MPF account and can only be withdrawn by the time of retirement. Considering employees may have short-term financial needs after their dismissal, we suggest that they should be allowed to draw a contingency sum equivalent to two months’ salary, or no more than HK$30,000, from their MPF accounts.


We also hope that the authorities could optimize the existing MPF mechanism and actively look at how to perfect the operation of MPF. In the long term, the authorities should explore setting up a singular MPF account for employees, which should be operated by one organization to ensure the continuous, smooth operation of the entire MPF system.


Affordability of employers and society should be considered

Regarding the government’s proposal to gradually cancel the offsetting mechanism, the industrial and business sectors basically hold the opposite view. We believe that the proposal is only postponing the implementation date for cancelling the offsetting mechanism. Even though the government provides subsidies, the amount would gradually decrease every two years, meaning employers will still be bearing the full responsibilities for the expenses of employees’ double retirement protection ten years later.


Besides, the calculation method of the government’s proposal is far too complicated. Companies would have to allocate additional resources and manpower to estimate the potential and actual expenses, which would create quite some administrative and financial burden on micro, small and medium enterprises. Some companies may dismiss employees who have served longer and replace them with non-permanent workers before the effective date. This would bring about profound impact on the overall employment market and social stability. At the same time, the increased labor costs and potential uncertainties could also dampen the entrepreneurial aspirations amongst the younger generation and hinder expansion amongst start-ups.


All in all, CGCC agrees with the SAR government’s active efforts in optimizing MPF arrangements, in further perfecting employees’ retirement protection, and in promoting stronger harmony in employer-employee relations. However, the authorities must consider the affordability of the industrial and business sectors in addition to taking care of the benefits of the workforce. They should strike an appropriate balance between optimization of the retirement protection system and promotion of industrial, business and economic development.