Hong Kong (HKSAR) – The Chief Executive, Mr C Y Leung, and the Chief Secretary for Administration, Mr Matthew Cheung Kin-chung, said today (June 23) that the Government’s original proposal remains the most optimal option to date to progressively abolish the “offsetting” of severance payment (SP)/long service payment (LSP) with the Mandatory Provident Fund (MPF), after considering in detail views from employers’ and employees’ groups and the alternative proposals raised in the past few months.
At the meeting today, the Executive Council advised and the Chief Executive ordered that the policy direction of progressively abolishing the “offsetting” arrangement should be reaffirmed and that the Government’s original proposal should be adopted as the basis for taking the matter forward.
The current-term Government put forth in the 2017 Policy Address a specific proposal to progressively abolish the “offsetting” of SP/LSP with the MPF, conducted a three-month consultation and listened to views from businesses, trade unions, Labour Advisory Board (LAB) etc ., with a view to finalising the proposal within the term of the current Government.
The Government’s proposal has the following three main elements: (1) there will be no retrospective effect. The accrued benefits from employers’ mandatory MPF contributions before the Effective Date will be “grandfathered”; (2) owing to the partially overlapping functions of SP/LSP with the MPF System, the amount of SP/LSP payable for the employment period after the Effective Date will be slightly adjusted downwards from the existing entitlement of two-thirds of the last month’s wages to half of the last month’s wages (or 75 per cent of existing entitlement) as compensation for each year of service; and (3) to assist employers, in particular small and medium enterprises (SMEs), in adjusting to the abolition of the “offsetting” arrangement, the Government will share part of the SP/LSP expenditure of employers in the ten years from the Effective Date so that employers can make use of this buffer period to prepare for the SP/LSP expenditure in the future.
They indicated that in the light of views from employers and employees, the Government has reviewed its original proposal and analysed counter-proposals raised by various parties. While there is no perfect solution, the Government’s proposal remains the most optimal option to date. The reasons are four-fold.
First, it is a finely balanced tripartite solution whereby employers, employees and the Government each have to pay extra costs or make some concession, with the consequential impact expected to be largely bearable for all three parties.
Secondly, the “grandfathering” arrangement and ten-year government subsidy provide a sufficiently long buffer period for employers to adapt to the policy change. In addition to fully preserving employers’ mandatory MPF contributions for retirement, employees will also receive a reasonable compensation in case of SP/LSP dismissals.
Thirdly, it is targeted, requiring only employers with SP/LSP dismissals to bear the costs while the majority of employers will be unaffected. In overall terms, the additional costs will be generally manageable for most sectors.
Fourthly, it is the most cost-effective option to settle the “offsetting” issue once and for all.
They said that in resolving the “offsetting” problem, the Government has been making our best efforts in mediating and carefully balancing both sides. Noting that abolishing “offsetting” will bring additional costs to employers, in particular the SMEs, the Government has proposed in an unprecedented move to provide ten-year subsidy amounting to $7.9 billion to assist employers to adapt to the change. The maximum tax forgone arising from LSP provisions which are tax deductible is about $18 billion in the ten years.