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LCQ18: The offsetting arrangement for severance and long service payments

     Following is a question by Hon Frederick Fung and a written reply by the Secretary for Labour and Welfare, Mr Matthew Cheung Kin-chung, in the Legislative Council today (February 3):


     Under the Mandatory Provident Fund Schemes Ordinance (Cap. 485), 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 or long service payment payable to the employee under the Employment Ordinance (Cap. 57). In his election manifesto, the Chief Executive (CE) made the pledge that "[w]e will adopt measures to progressively reduce the proportion of accrued benefits attributed to employer's contribution in the MPF account that can be applied by the employer to offset long-service or severance payments" (offsetting proportion). It has been more than three years and a half since CE took office but he has not yet put forward any specific arrangement for fulfilling this pledge. When attending a Question and Answer Session of this Council last month, CE said that he "would certainly strive to fulfill, during this term of office, the pledges made in the manifesto". In this connection, will the Government inform this Council:

(1) whether it has so far devised any concrete plan for fulfilling the aforesaid pledge; if it has not, how the Government embodies CE's claim that he "would certainly strive to fulfill, during this term of office, the pledges made in the manifesto", and whether the Government has now given up fulfilling this pledge; and

(2) whether it will make reference to the experience gained in implementing the Statutory Minimum Wage regime and the arrangements for paid paternity leave, and progressively reduce the offsetting proportion set out in the contracts to be entered with its contract staff in future, and request its outsourced service contractors and subsidised public bodies to follow such a practice, so as to take the lead in this respect and demonstrate the Government's determination to fulfill the aforesaid pledge; if it will not, of the reasons for that?



     The Government's response to Hon Frederick Fung's question is as follows:

(1) The offsetting of severance payment (SP) and long service payment (LSP) against the accrued benefits arising from employer's contribution to the Mandatory Provident Fund (MPF) involves the interests of various stakeholders. It is an issue of considerable concern to the community and is also related to the important issue of retirement protection. Introducing changes to the existing arrangement will affect both the retirement benefits of employees and operating costs of employers, especially those of small and medium enterprises (SMEs). At present, the community has yet to reach a consensus on this issue.

     The Commission on Poverty (CoP) is now conducting a six-month public consultation on retirement protection, gauging public views on how to strengthen the function of the various pillars of the existing retirement protection system including the offsetting arrangement. The community could make good use of this consultation to conduct thorough and in-depth discussion on the impact of the feasible options for addressing the "offsetting" issue on employers and employees, as well as the role of the Government. The community should endeavour to find a way acceptable to both employers and employees. Also, the community should consider ways to rationalise the relationship between SP/LSP and the MPF System, and discuss mitigation measures which can reduce the impact of any changes on the business sector (especially SMEs) and the labour market. The Government maintains an open mind in listening to different views and, on completion of the consultation, will analyse and study in detail the views collected and examine this issue holistically.

(2) Any change to the MPF offsetting arrangement involves the interests of various stakeholders and will impact on Hong Kong's business environment. Hence, we should seek to narrow differences, maximise common ground and tackle the issue prudently. The CoP is currently conducting a public consultation on retirement protection (including the offsetting arrangement). Before the community reaches any consensus on the issue, the Government will continue to fulfil its legal obligations as an employer by handling the MPF arrangement of government employees in accordance with the prevailing legislation. It has no intention of requiring its outsourced service contractors or subsidised public bodies to change the existing arrangement in advance.

Ends/Wednesday, February 3, 2016
Issued at HKT 14:06


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