HONG KONG – Hong Kong's Legislative Council (LegCo) passed a crucial bill on Thursday, signalling a major labor reform that will enhance the retirement protection of employees.
The Employment and Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Bill 2022 was passed with 72 legislators voting for it, five against and 12 of the LegCo's 90 members abstaining.
The Mandatory Provident Fund (MPF) covers more than 2.8 million workers in Hong Kong.
The Employment and Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Bill 2022 was passed with 72 legislators voting for it, five against and 12 of the LegCo's 90 members abstaining
The government expects that the "offsetting" mechanism could be formally abolished in 2025 without retroactive effect with employers no longer be able to apply the offset from what is to be determined as the "transition date".
The arrangement currently allows employers to use the pension accruals of their staff to pay off what is owed by way of severance and long-service payments or in the event of termination or closure of business.
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The passage of the bill is particularly significant for outgoing Chief Executive Carrie Lam Cheng Yuet-ngor Lam as it had been her election promise five years ago that her government will pursue measures to optimize the Mandatory Provident Fund system and examine how best to provide better protection for retirees.
In a press release, the CE welcomed the passage of the bill, saying: "Given the rapid ageing of Hong Kong's population, the issue of retirement protection has become more imminent. As early as when I served as the Chief Secretary for Administration and the Chairperson of the Commission on Poverty, I championed the need to strengthen the Mandatory Provident Fund as one of the key pillars of Hong Kong's retirement protection system, under which the community must duly address the 'offsetting' arrangement."
In this Nov 29, 2000 photo, a mandatory provident fund (MPF) poster adorns the window of a bank in Hong Kong. (FREDERIC BROWN / AFP)
The calculation of the severance or long service payments will remain unchanged at two-thirds of the last monthly wages, subject to a maximum of HK$22,500 ($2,867), for each year of service, capped at HK$390,000.
Hong Kong's labor sector and employers had been at loggerheads for a decade over the mechanism and it took frequent discussions with stakeholders before the bill could be drafted, to be finally gazetted and eventually tabled in LegCo on Feb 23.
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Secretary for Labor and Welfare Law Chi-kwong said the bill’s passage is “a historic moment and an important milestone” in improving retirement protection of employees.
“Six years and a half since the public consultation on retirement protection in 2015, the legislative amendments have now been completed,” Law said, thanking the various stakeholders for their inputs and for supporting the bill.
The government will now set up the related funding program, follow up in the next legislative session on a Designated Savings Accounts Scheme for employers to cope with future financial needs, and conduct extensive publicity to help employers grasp the abolition of the "offsetting" arrangement and related ancillary measures.
The government will extend HK$33.2 billion in subsidies over 25 years to help employers cover the payments.
Some lawmakers would like to have the implementation date of the "offsetting" mechanism brought forward while some in the business community have questioned the timing of the bill’s passage.
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However, Law said making full use of the eMPF platform is more efficient since coming up with an alternative platform could take two to three more years.
“The alternative of not making full use of the eMPF Platform will imply that the government has to set up a separate platform to all those things that we need to provide the support, including DSA and how to assist the employers to deal with all these calculations of ‘offsettable’ and ‘non-offsettable’ severance payments or long-service payments,” Law said.
He added that it would also avoid the complication of employers having "to face two separate platforms” in the future.