Abolishing the Mandatory Provident Fund off setting mechanism (2016/11/10)

Deputy President, I rise to speak against the motion on "Abolishing the Mandatory Provident Fund off setting mechanism" proposed by Mr WONG Kwok-kin.

Let us recap some history. Amendments were made to the Employment Ordinance respectively in 1974 and 1986 to provide for the provision of severance and long service payments to eligible employees. The legislative intent was to protect employees' legitimate interests. Under the then economic environment and social atmosphere, both employers and employees were willing to accept the amendments. Following social advancement, various parties began to show concern for the lack of retirement protection for employees. After along period of discussion, the Government, employers and employees eventually reached a consensus on the implementation of the Mandatory Provident Fund("MPF") System, under which employers and employees would each make an 5% contribution on basis of the latter's income. To avoid adding to the employers' burden and to seek their support, during the negotiation process the Government promised that the MPF accrued benefits could be used to offset severance and long service payments. Eventually, the Mandatory Provident Fund Schemes Ordinance was passed in 1995 and came into operation at the end of 2000. The successful implementation was the result of mutual understanding among the Government, employers and employees and the tripartite preparedness to address the reality.

The MPF System has been implemented for over a decade. There are in general strong views in society about the failure of MPF to achieve the original purpose of protecting employees' retirement life. Firstly, the return rate of MPF schemes is low. According to the information of the Mandatory Provident Schemes Authority, since the establishment of the MPF System, the average annual return rate is only 2.6%, and individual years of economic downturn have even seen a high rate of loss. For example, last year the loss reached 8.2%, equivalent to $5.1 billion. Secondly, MPF has failed to achieve the effect of retirement protection. Many low-income employees find, only upon retirement, that the protection is seriously insufficient since they are exempt from making contributions or the amounts of their contributions are small. However, employers are not to blame for these. The lack of retirement and MPF protection for employees is caused by the Government's then miscalculation and its ineffective regulation. Over the years, employers have fulfilled their duty of making contributions in accordance with the statutory requirements. It is an unreasonable arrangement to require employers to shoulder the responsibility for the Government's past mistakes and enhance the protection for employees through an abolition of the off setting mechanism today.

Deputy President, at present there are 320 000 small and medium enterprises ("SMEs") in Hong Kong, employing 46% of the total employed population in commercial organizations, comprising about 1.3 million people. An abolition of the off setting mechanism will cause an immense impact on the SMEs, directly imposing a heavy burden which will also adversely affect the employees. As we all know, the present economic environment in Hong Kong is just so-so. Most of the SMEs have difficulties in carrying on their business and hardly hold much reserve. People who have operated a business will know that many business operators will spend money ahead of their income. It is very common for enterprises to make purchases on credit because of insufficient liquid capital.

If the off setting mechanism is abolished, responsible employers will be compelled to hold a reserve by reducing their investment or securing loans so as to raise sufficient money to cater for the making of severance and long service payments. Suppose a medium enterprise has hired 20 employees whose length of service is 10 years on average. Using the median wage of $15,500 as the basis for calculation, the enterprise will have to reserve some $2 million. The greater the number of employees with long years of service, the greater the amount of money the enterprise will need to reserve.

If the employers find themselves incapable of resolving the reserve problem, the following situations, I believe, may arise: employers who are unable to raise such money may have no choice but to reduce the business scale or even fold the operation. Be it a reduction in the scale of the company or business closure, those who are affected the most will definitely be the staff. If the SMEs consequently close down one after another like dominoes, it will seriously affect the economic vitality, industrial ecology and social stability in Hong Kong.While members of the public will have fewer choices of consumption, monopolization by major enterprises will even come into existence.

Another possibility is that before the implementation of the law, a company will first lay off employees with long years of service and then hire them afresh. Every time an employee's length of service approaches five years, it will sign a new contract with him or recruit a new employee. In this way, it seems the enterprise is able to resolve the problem brought by the abolition of the MPF off setting arrangement, but in reality, it will have counter-effects. Employees who remain in their jobs will lack a sense of belonging because their welfare has been compromised, and it will be difficult for them to maintain good performance. Labour disputes will also be aroused easily, injuring the employer-employee relationship. If a company frequently replaces its employees with new ones, repeated recruitment and training exercises will also mandate the injection of a large amount of resources, which will certainly affect the company's business performance. Hence, an abolition of the off setting mechanism will only further undermine Hong Kong's competitiveness in the long term

Deputy President, as Mr Jimmy NG has pointed out in his amendment, "on the premise of ensuring that Hong Kong's business environment and employment market will not be challenged and social resources will be fairly utilized", we should "comprehensively review the MPF scheme". Only then will the core problem be resolved. Mr WONG Kwok-kin's proposal merely requests abolition of the MPF offsetting mechanism from the angle of the labour sector without considering the overall interests of Hong Kong society and the price payable. Neither does it make any objective analysis of the deep-rooted conflicts which employers and employees may consequently face. I hope the Government will conduct an in-depth exploration and listen to more views of different stakeholders. Do not abolish the MPF offsetting mechanism under pressure. Instead, it should carry out further studies on the existing retirement protection issues.

Deputy President, I so submit.