Time to rationalise the patchwork retirement provisions for Hong Kong workers
Lawrence J. Lau says the contentious issue of whether we should ‘offset’ severance and long-service payments with an employee’s MPF can be resolved with a more sensible system of benefits
The “offsetting” of the severance and long-service payments with an employee’s Mandatory Provident Fund is a contentious issue, but it does not need to be. The problem should be approached by examining the original purpose of the payment schemes to see whether there are better ways of fulfilling their aims without reducing employee benefits or increasing employer costs.
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Both the schemes for severance payments (introduced in 1974) and long-service payments (1986) predate the MPF scheme, which was established in 2000. Both are payable by an employer when the employee leaves, depending on the circumstances. They are calculated in the same way, but the employee cannot receive both at the same time.
Both have elements of retirement provision. But as the MPF scheme now provides basic retirement benefits for almost every employee in the private sector, we should consider whether the various schemes can be rationalised. The existence of “offsetting” shows that some benefits may be duplicated.
The severance payment is a form of unemployment benefit, since it is triggered by redundancy. Such benefits are best offered as insurance by a third party, such as the government, rather than the employer. The existing practice is unlikely to be financially viable, especially for small and medium-sized enterprises.
One purpose of the long-service payment is to provide for the retirement of the employee and a benefit in the event of death. These are already subsumed in the MPF scheme. However, since MPF contributions are not retroactive to before the scheme’s introduction, in the transition phase, adjustments are necessary so as not to reduce employee benefits or raise an employer’s obligations.
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