More than half (65%) of human resource practitioners in Hong Kong are in favor of eventually abolishing the Mandatory Provident Fund offsetting mechanism for making severance and long-service payments to employees, according to an online survey conducted by the Hong Kong Institute of Human Resource Management (HKIHRM).
Under this scheme, an employer who is liable to pay an employee severance payments or long service payments under the Employment Ordinance, can offset the SP or LSP with the accrued benefits derived from the employer’s contributions made to an MPF scheme for the employee.
Almost all (99%) of the respondents reported that their organizations provided MPF schemes for employees while 41% of the respondents reported that their organizations provided both MPF scheme and other employer-sponsored retirement schemes (e.g. Occupational Retirement Schemes and Pension Plans) to their employees.
Forty-seven percent of the respondents reported that their organizations capped the mandatory employer’s MPF contribution at 5 percent for all employees while 24% of the respondents reported that their organizations offered more than the 5 percent mandatory employer’s contribution for all employees. Twenty-nine percent of the respondents reported that their companies offered 5 percent of the employer’s MPF contribution to some employees and other employees would get a higher percentage.
In terms of company size, large companies with over 500 employees recorded the highest percentage (41%) in offering employer’s MPF contribution in various percentages, with the 5 percent mandatory employer’s contribution as the starting level. In terms of management category, multinationals tended to be more generous in the employer’s MPF contribution, with 31% of them paying more than the mandatory 5 percent to all their employees.
Employers’ stance on abolition of MPF offsetting
The findings revealed a close tie between employers who supported (20%) and opposed (23%) abolishing MPF offsetting for severance and long-service payments while 56% of employers held no particular view on this issue.
For top three reasons given by companies that supported abolition of MPF offsetting, 85% agreed that they wanted to provide their staff with better retirement protection, followed by being perceived as a caring and considerate employer (75%) and wanting to provide redundant staff with more protection during unemployment (72%).
For top three reasons given by companies that opposed abolition of MPF offsetting, 78% cited the increased cost for staff dismissal/redundancy as a key reason, followed by those holding the view that employers should not be obliged to make double payments (73%) Double payments here refer to the MPF employer’s mandatory contribution, together with severance or long-service payment made by an employer to employees) and that employers might be forced to hire staff on short-term contracts (30%).
Alternatives to abolition of MPF offsetting from employers’ perspective
When asked about what alternatives can be considered over abolition of MPF offsetting, a higher percentage of companies held the view that employers should be offered tax credits (53%) and partial offsetting of certain percentage of employers’ mandatory contribution (52%). Another 34% of companies regarded progressively reducing proportion of offsetting amounts over a number of years as an alternative.
HR practitioners’ professional stance on abolition of MPF offsetting
The survey also asked about HR practitioners’ professional stance on the abolition of MPF offsetting for severance and long-service payments. The findings revealed that almost two-thirds (65%) of HR practitioners supported eventually abolishing MPF offsetting for severance and long-service payments while only less than one-third (23%) were against it.
For top three reasons given by HR practitioners who supported abolition of MPF offsetting, 92% cited having better retirement protection for employees as a major reason, followed by 69% who expressed that their organizations would be perceived as a caring and considerate employer, with another 69% reflecting that the abolition would offer more protection for redundant staff during unemployment.
For top three reasons given by HR practitioners who opposed abolition of MPF offsetting, 73% argued that employers should not be obliged to make double payments as a key reason, followed by reasons such as increased costs of staff dismissal/redundancy (63%) and employers being forced to hire staff on short-term contract (45%).
Alternatives to abolition of MPF offsetting from HR practitioners’ perspective
Forty-five percent of the polled HR participants expressed that offering tax credits to organizations could be an alternative to abolition of MPF offsetting while 42% proposed that partial offsetting of a certain percentage of employers’ MPF mandatory contribution could be an option.
Other suggestions including partial offsetting of certain percentage of employers’ non-mandatory MPF contribution (21%) and progressive reduction in proportion of offsetting amounts over a number of years (21%) were given as alternative solutions.
No prevailing stance
The survey findings revealed that there was no prevailing trend for Hong Kong employers to support or oppose abolishing MPF offsetting for severance and long-service payments. A large majority of Hong Kong employers (56%) do not have a particular stance and keep an open mind to this issue.
The survey also tapped into the professional views of HR practitioners on the issue. The results showed that a majority of Hong Kong HR practitioners (65%) supported eventually abolishing MPF offsetting. One key observation was that providing staff with better retirement protection was rated by both organizations (85%) and HR practitioners (92%) as the top reason to support abolition of MPF offsetting.
“To safeguard employees’ retirement protection, the Institute supports eventually abolishing MPF offsetting for severance and long-service payments, which should be implemented by phases with due consideration of various stakeholders’ concerns,” says Julita Leung, Chairperson of HKIHRM’s Employment-Related Hong Kong Legislation and Issues Committee.
To facilitate the transition, the Institute proposes exploring alternative arrangements such as tax credits to employers and partial MPF offsetting using the employer’s voluntary contribution.
Leung adds that employees should have proper retirement protection under any circumstance and should receive proper compensation due to loss of office.