Mercer Opines: Do You Think Abolishing the MPF Practice in Hong Kong Will Help?

February 10, 20178:56 am818 views

Addressing the flaring issue of offsetting severance payments and long-service payments in Hong Kong, and the controversial practice of abolishing MPF which would weigh extra costs on the employers, we at HR in Asia, caught up on an interesting conversation with Billy Wong, Wealth Business Leader of Hong Kong, China and Korea at Mercer to understand if such changes would have any retrospective effect on the past MPF contributions and if measures implemented by the Government would help strike an effective balance and ensure fairness to all – both employers and employees alike. Read on…

  • What are your thoughts on abolishing the controversial practice of allowing employers to use the money they put into workers’ retirement funds to offset severance and long-service payments?

The purpose of MPF system is to ensure employees save for their retirement and the offset is definitely weakening such a purpose. While the MPF system is not perfect, it does enforce a discipline on both the employer and employee to make monthly savings deductions and gives employees the chance to choose how those are invested.

Billy Wong, Wealth Business Leader of Hong Kong, China and Korea at Mercer

Billy Wong, Wealth Business Leader of Hong Kong, China and Korea at Mercer

Mercer believes it is appropriate that the policy speech addressed this issue. Abolishing the practice will increase the cost burden to employers and it is therefore understandable that some employers do not support this idea.

The proposed policy is trying to mitigate the impact of cost increases for employers with the ‘grandfathering’ arrangement as well as government subsidies and reduction of the multiple from two-third to half.  Effectively employers and taxpayers shared the cost impact, and the employees’ ask is reduced.

  • Do you think the Hong Kong government will be able to strike an effective balance, in all fairness to employees and silence the trade union debate on gradual cancellation of the mechanism, wherein employers can use employee’s MPF contributions to pay severance and long service payments?

It is always difficult to strike an effective balance when different parties are defining fairness differently. This is a fundamental problem of whether people are willing to respect the current system of decision making through LegCo.  If so, then there should only be few rounds of debate and then a decision is to be made.

See: Changes to Hong Kong’s Pension Offset Mechanism and Severance Payments Anticipated

  • Would such changes have any retrospective effect on previous MPF contributions? Would these mean employers will dismiss employees before the cut-off date, to ensure offset is available to them?

Based on what we understand from the policy address, these changes will not have any retrospective effect.

  • Will the government’s plans to pacify the angry business sector by subsidizing employers for 10 years with taxpayers’ money help businesses and particularly SMEs in Hong Kong to overcome the financial burden?

The government’s plan will help mitigate the impact, but employers would still need to bear the extra costs. Some companies could pass the costs back to customers easily and hence the impact on business could be minimal. On the other hand, some companies may not be able to pass the costs on and hence they may suffer and struggle to survive.

  • Do you think the government should abolish the MPF and instead set-up a CPF to help employees enhance their retirement savings?

Every pension system has its pros and cons.  It is not difficult to find negative feedback about the CPF in Singapore. Replacing MPF with another system does not necessarily solve the problems. Getting retirement planning right with an ageing population is not easy.

It is true that Hong Kong employers and members are not satisfied with the MPF system, according to our latest research.  Our view is that the root cause of the problem is not about the fees and the performance, so much as lack of understanding.

There has been a wide range of investment choices with different fees, risk profiles and performance records, but employers and members do not change providers when they are not satisfied. We believe that increased education and financial literacy together with support from independent financial advisors will positively impact the mobility of the MPF market.

Education is important as it enables those who aren’t currently satisfied with the scheme to better understand the options available to them and may also alleviate any concerns regarding high fees, as there are multiple low fee options available in the market.

Also read: False Claims Made for Early Withdrawal of MPF Benefits is a Criminal Offense in Hong Kong


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