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Hong Kong Studies Pension Fund Contribution Offsets

by Mary Swire, Lowtax.net, Hong Kong
27 January, 2014

In reply to a question in the Legislative Council, Hong Kong's Secretary for Financial Services and the Treasury, Prof KC Chan, has said that the Government must carefully examine the arrangement of offsetting severance payments and long service payments against Mandatory Provident Fund (MPF) accrued benefits.

On January 22, Chan told legislators that the issue affects both employees' retirement protection and employers' operating costs, and that there were, therefore, opposing views on whether to abolish the offsetting arrangement between employees and employers' associations.

Under the existing legislation, an employer is allowed to use the accrued benefits derived from the employer's contributions made to an MPF scheme for an employee to offset the severance payment (SP) or long service payment (LSP) payable to that employee under the Employment Ordinance (the offsetting arrangement).

Some employees have pointed out that the offsetting arrangement undermines the interests of employees and deprives them of retirement protection, while employers' associations believe its abolition would not only greatly increase operating costs, but impact their budget if they cannot use their contributions to offset the payments.

In addition, it is suspected that the financial pressure on employers, especially small and medium enterprises, caused by the change could even affect employees' terms of employment and job opportunities, ultimately jeopardizing employees' interests.

Chan confirmed that options for taking forward a phased-abolition of the offsetting arrangement would have varying impacts, and added the Government would listen to differing views and carefully examine the issue.

A comprehensive report in our Intelligence Report series titled "The Lowtax International Pensions Report" which has an in depth view on The Mechanics of Pensions Provision, 'High-Tax' Country Pension Regimes and 'Lowtax' Jurisdictions In Which To Locate Pensions Savings, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report14.asp

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