Vastly increased proposal comes as officials keep trying to scrap pension scheme’s controversial offsetting mechanism
Hong Kong leader Carrie Lam Cheng Yuet-ngor’s cabinet on Tuesday approved a proposal that drastically increases the subsidy the government offers to employers to stop them from tapping into staff pension funds.
The latest offer was much more generous than the first proposal by the previous administration under Leung Chun-ying last year, who offered a subsidy of HK$7.9 billion (US$1 billion) over 10 years.
The move came amid the government’s attempts to scrap the controversial offsetting mechanism for the Mandatory Provident Fund (MPF) – the city’s pension scheme. Under the scheme, employers are allowed to offset their staff’s long service and severance payments with the bosses’ contribution to employees’ MPF accounts.
Labour unionists have for years hit out at the mechanism, saying some workers have barely any long service or severance payments left after the offsetting. Last year, employers offset HK$4.2 billion (US$540 million).
The latest proposal was an apparent bid to calm the business sector’s anger. Hong Kong’s small- to medium-sized enterprises have demanded indefinite subsidies, while the city’s five biggest business organisations have demanded more subsidies.
Details of the latest proposal approved by the Exco remain unclear.
But in March, the government put forward a plan in which bosses would no longer be allowed to do offsetting. Bosses would set up a savings account and contribute one per cent of employees’ wages to pay for the long service and severance payments. The money in that account would be capped at 15 per cent of a worker’s annual wage.
In that proposal, the government would provide HK$17.2 billion to employers for 12 years. But the new plan increases the amount to HK$29 billion and increases the period to 25 years.
The subsidy scheme would be rolled out as a complex, two-tiered system with employers getting less subsidies over the years.
MPFA had pledging ceremony for MPF Trustees on 24 May 2018
The Hong Kong Mortgage Corporation (HKMC) proposed such a scheme on 10th April 2017. The intention is to provide lifetime payouts to those over age 65 who wish to have a regular income. A minimum premium of HK$50,000 and maximum premium of HK$1,000,000 applies. For a male annuitant at age 65, this will mean HK$500 – HK$580 per HK$100,000 premium paid (estimates are subject to further validation). Arrangements apply for death benefit, surrender value and no health underwriting is required. For more information, visit the HKMA website: http://www.hkma.gov.hk/eng/key-information/press-releases/2017/20170410-4.shtml
Further reading: HK$10 billion annuity plan will guarantee monthly payout for Hong Kong retirees
Each MPF scheme has to offer a Default Investment Strategy (“DIS”) starting from 1 April 2017. The DIS represents a major reform of the Mandatory Provident Fund System. For details of the DIS, visit the MPFA website: http://www.mpfa.org.hk/engm/main/DIS/index.jsp or contact your Trustee.
Firstly, the Government will not introduce a universal pension system, but instead add another tier and higher payout to the Old Age Living Allowance. The asset limit for the allowance will also be raised. Secondly, the age of eligibility for the elderly’s Comprehensive Social Security Assistance scheme will be raised from 60 to 65 to align with policy efforts to extend the retirement age. Finally, the Government is to progressively abolish offsetting of SP (Severance Payments) or LSP (Long Service Payments) with MPF contributions with three key elements; (1) no retrospective effect (2) adjust SP/LSP payable for post-implementation employment period from “2/3 of wages” to “1/2 of wages” and (3) Government subsidy in the 10 years after implementation. The Government is consulting stakeholders, including MPF trustees and target to take the proposals to the Executive Council by end-Jun 2017. For details, visit the Government website: http://www.budget.gov.hk/2017/eng/budget07.html