The Hong Kong government is working out a plan by the end of the year to scrap the current system of allowing employers to make severance and long-service payments from employees' pension funds under the Mandatory Provident Fund (MPF) scheme.
The government has been holding discussions with the business sector on how to revise the plan, which workers have long criticised as legalised plunder of their retirement savings, reported the South China Morning Post.
The government proposed to reduce the maximum long-service and severance payout ceiling from HK$200,000 (US$25,600) from HK$390,000 and in return, employers would be barred from using workers’ pension funds. In tandem, payouts would be adjusted downwards from the existing entitlement of two-thirds of the last month’s wages to half as compensation for each year of service.
The administration has also proposed providing funds of HK$7.9 billion to ease the financial burden on employers in the 10 years after the mechanism is scrapped.
This week, however, members of Hong Kong’s business chambers which represent employers rejected the proposal, arguing that it would be a burden on small and medium-sized firms. However, labour representatives say that any reduction in the cap would hurt workers.
The MPF applies to employees who have an employment contract of at least 60 days. The employer and the employee each contribute a sum equal to 5% of the salary of employee whose earnings are above a certain threshold. The choice of the MPF manager is made by the employer. Employees are expected to join the MPF provider of their new employers when they change jobs. MPF benefits accrued in the previous job may be transferred to a personal account in a master scheme or to the contribution account in the scheme of the new employer. When an employee reaches the age of 65, he or she can withdraw accrued benefits in a lump sum or by instalments.