Dr Charles YEUNG (Chairman of the 48th, 49th terms of office) June 2016
As the retirement protection system has a far-reaching impact on the overall development of Hong Kong’s society, the authorities must examine the affordability of the society, and strike a balance between improving the social security system and promoting sustainable economic development.
The Commission on Poverty is conducting a public consultation on the retirement protection scheme. Faced with the challenges arising from the rapid ageing of Hong Kong’s population, we recognize the need to improve Hong Kong’s retirement protection system. We, however, must take into account social affordability and the burden on fiscal expenditures, and more appropriately use our limited resources for the elderly who are genuinely in need.
In addition, as an important pillar of the retirement protection system, the MPF’s functions are drawing much attention. Particularly, the abolition of the offsetting mechanism will bring huge burden on employers and involve other complex issues on labour welfare policies. It is therefore necessary to conduct a comprehensive and objective analysis before implementing.
Considering both social affordability and sustainability of the system
As retirement protection involves the interests of the society as a whole and has far-reaching implications for business operations and environments, we are paying considerable attention in this regard. Earlier, the Chamber had submitted our views regarding the retirement protection consultation document to the HKSAR Government, and in conjunction with four other major business chambers in Hong Kong, jointly organized a consultation forum. Chief Secretary for Administration Carrie Lam, and Secretary for Labour and Welfare Matthew Cheung were invited to the forum to exchange views with members of the chambers on retirement protection.
The Chamber believes that when considering the retirement protection scheme, the heavy financial burden on public expenditures cannot be ignored. According to the projections mentioned in the consultation document, if the “regardless of rich or poor” option (i.e. non-means-tested uniform monthly payment) is to be adopted as the principle for retirement protection scheme, it is estimated that new expenditures will amount to HK$2,395 billion in the next 50 years, nearly 10 times higher than the estimated HK$255.5 billion expenditures of the “those with financial needs” option. In addition, it is estimated that the “regardless of rich or poor” option will result in an average increase of 4.2 and 8.3 percentage points in related profits tax and payroll tax rates, respectively. In contrast, the “those with financial needs” (TFN) option will lead to an increase of less than one percentage point in the related tax rates. It is evident that the “regardless of rich or poor” option will significantly increase the burden on public expenditures or even exacerbate the structural deficit problem, and ultimately the retirement protection system will fail to develop effectively and sustainability.
In contrast, the TFN option will lead to a significantly lighter burden on public expenditures; also, introducing a proper asset review measure would ensure the proper utilization of public resources to help those elderly who are genuinely in need. The retirement protection system as a whole will then be able to perform its intended functions. However, the asset limit proposed by the current TFN option in the consultation document seems to be too strict. The authorities should consider relaxing the limit to ensure that the system can strike an appropriate balance between the interests of the grassroots and sustainable development.
Reviewing comprehensively the MPF system
We believe that the abolition of the MPF offsetting mechanism would inflict a huge financial burden on businesses, especially SMEs, and it also involves the arrangements for the entire MPF system and labour welfare policies. In fact, before the implementation of the MPF system, employers had been providing appropriate short-term compensation and retirement protection for their departing employees through severance and long service payments. When the MPF system was introduced, the authorities agreed to set up the offsetting mechanism so that employers do not have to continue the severance payments and long service payments on top of making MPF contributions. The abolition of the MPF offsetting mechanism, if it happens hastily now, will indirectly double employers’ expenses, which will not only be unfair to them, but also put a heavier burden on business operations.
Currently, many in the public argue that the offsetting mechanism deprives employees of their contributions. We consider it necessary to stress that the offsetting mechanism merely enables employees to withdraw in advance the MPF contributions already made by their respective employers through severance or long service payments. It absolutely does not deprive employees of any payments due to them. We hope the public could distinguish the functions and relationships between the MPF, severance payments and long service payments. In the long run, we should consider fully integrating and simplifying the relevant arrangements, and seeking improvement of the operations of the existing MPF scheme. This will include lowering the administrative costs, improving the fund’s performance and increasing the returns on investment so that the whole system can more effectively function as a pillar for retirement protection.
In conclusion, we agree that society should help the disadvantages and the people truly in need, but at the same time, all of us have to make our own long-term plan for retirement. As the retirement protection system has a far-reaching impact on the overall development of Hong Kong’s society, the authorities must examine the affordability of the society, and strike a balance between improving the social security system and promoting sustainable economic development. I believe that a viable win-win solution can be found through rational communications and discussions among all sectors of society. It not only allows the whole system to develop continuously and steadily, but also consolidates the foundation of healthy public finances and long term competitive advantages of Hong Kong.
