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LCQ3: Arrangement for offsetting severance payments and long service payments

      Following is a question by Hon Tang Ka-piu and a reply by the Secretary for Labour and Welfare, Mr Matthew Cheung Kin-chung, in the Legislative Council today (October 28):


      Under the Mandatory Provident Fund Schemes Ordinance, an employer may use the accrued benefits derived from the contributions he made for an employee to a Mandatory Provident Fund (MPF) scheme to offset the severance payment (SP) or long service payment (LSP) payable to the employee under the Employment Ordinance (the offsetting arrangement). Although the Chief Executive indicated in his election manifesto in as early as 2012 that he would progressively reduce the proportion of the offsetting amount, the Government has not put forward any specific proposal for fulfilling that pledge, and the offsetting arrangement has been incessantly gnawing the accrued benefits payable to employees. On the other hand, a number of employer groups have reacted strongly to the reports that the Government intends to propose the abolition of the offsetting arrangement in the 2016 Policy Address. In this connection, will the Government inform this Council:

(1) whether the authorities have conducted studies on the abolition of the offsetting arrangement; if they have, of the details; if not, the reasons for that; whether the authorities will consider drawing up a timetable for the abolition of the offsetting arrangement;

(2) whether the authorities have approached employer groups and labour organisations to gain an understanding of their specific views on the abolition of the offsetting arrangement; if so, of the views of both sides, the efforts made by the authorities to reduce the differences between them, and whether they have put forward any proposal acceptable to both sides; if not, whether they will make efforts to gain an understanding of the views of both sides; and

(3) given that some academics have proposed that when introducing legislative amendments to abolish the offsetting arrangement, the Government should impose a five-year transitional period in which employers are allowed to claim reimbursements from the Government for the extra amounts which originally could have been withdrawn from employees' MPF accounts for settling SPs or LSPs, whether the authorities will study the feasibility of that proposal?



      The Government's response to Hon Tang Ka-piu's question is as follows:

      The offsetting of severance payments (SP) and long service payments (LSP) against the accrued benefits arising from employers' contribution to Mandatory Provident Fund (MPF) involves the interests of various stakeholders. Introducing changes to the existing arrangement will affect the retirement benefits of employees and the operating costs of employers, especially those of small and medium enterprises (SMEs). At present, the community has not yet reached any consensus on the matter.

      The Government has all along been attaching great importance and listening carefully to the views of different sectors of the community, especially those of employees and employers, on the offsetting arrangement. Earlier on the Legislative Council Panel on Financial Affairs and Panel on Manpower held a joint meeting to gauge the views of deputations from different sectors including a number of labour groups, employers and business organisations on the MPF offsetting arrangement. The views of the employers and employees on this issue, as expressed at the meeting, were sharply divergent. The labour sector was concerned that the offsetting arrangement would reduce MPF accrued benefits for employees, and strongly called for abolishing the offsetting mechanism as soon as possible so as to enhance retirement protection for employees. On the other hand, employer groups considered that the offsetting mechanism represented the consensus reached after extensive consultation when the MPF arrangement was passed into law. Employer groups agreed to support the implementation of the MPF system because the Government clearly stipulated in the MPF Bill to permit offsetting of SP/LSP by MPF accrued benefits arising from employers' contributions. They maintained that abolition of the offsetting mechanism would not only amount to a breach of the consensus then, but would also increase employers' financial burden and impact significantly on the business environment of SMEs in particular. Hence they objected strongly to the abolition of the offsetting mechanism.

      The Government notes that different sectors of the community have recently actively expressed through different channels their respective views and suggestions on the offsetting arrangement. The current retirement protection system has four pillars, one of which is the MPF. As such, the offsetting arrangement of MPF is related to retirement protection. There has all along been a substantial body of opinion in the community that the retirement protection function of MPF should be strengthened. The Commission on Poverty will launch a 6-month public consultation on retirement protection in December this year. We will in that context consult different sectors on matters that render the MPF not being able to discharge its inherent retirement protection function such as the offsetting arrangement. On completion of the consultation, the Government will analyse and study in detail the views collected and examine this issue holistically. We will maintain an open mind in listening to different views and will be very prudent in considering any proposals that involve the use of Government funds. We hope that both employees and employers could consider the matter from a holistic point of view and be sympathetic and accommodating towards each other's position. In the spirit of reaching common ground whilst accepting each other's differences, we hope that employees and employers could through inclusive and rational discussion build consensus and forge the greatest possible mutual understanding in tackling this issue.

Ends/Wednesday, October 28, 2015
Issued at HKT 14:08


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