MR CHAN KIN-POR (in Cantonese): This motion today is about abolishing the Mandatory Provident Fund (“MPF”) offsetting mechanism, which in my view can be a discussion among all stakeholders, in particular employees and employers. However, I would like to do some explaining on the statement in the original motion, namely the point that since the implementation of the MPF scheme in 2000, its effectiveness has been questioned by society.
Unsatisfactory MPF returns are mainly the result of the untimely inception of the scheme, which has undergone multiple economic turmoils, rendering any guarantee on investment returns relatively difficult. Moreover, the rate of MPF contributions in Hong Kong falls way short of the worldwide standards and with its relatively short history of operation, it is still at an embryonic stage that can yet to produce the best economy of scale. In addition, the system calls for extensive compliance work, leading to a very high compliance cost and heavy manpower input to handle monthly transactions. As a matter of fact, it is essential that the introduction of a new system, especially long-term and sizable ones, in society must undergo a long period of adjustment and optimization before results can be observed. Hence, the industry and relevant departments have made numerous proposals for revamping MPF so as to enhance the MPF System.
The latest revamp is the introduction of the default investment strategy approved by the Legislative Council a few months ago, which mandates a rate of fund management fee not higher than 0.75% and that of out-of-pocket expenses not higher than 0.2%. The revamp provides the public with a low-fee option, amid the growing prevalence of low-fee funds in the market. The figures provided by the Mandatory Provident Fund Schemes Authority (“MPFA”) indicated that the average fund fee in 2007 was 2.1%, which dropped to 1.57% in 2015 and even lower after deduction of discounts. I believe the industry and relevant departments will continue to strive for revamps and optimization, allowing room for a further reduction of fees.
On the other hand, MPF has been criticized for its poor returns. Nevertheless, let us look at some actual figures. From the establishment of MPF in 2000 to September 2016, the 10-year returns of certain best performing Hong Kong equity funds, calculated in annualized terms and after deduction of all fees―note that after all fees are deducted―amounted to 8.54%, with the worst being 3.26%, far higher than inflation in the same period. In a flagging investment market a few years ago, the public, seeing no gain and even losses in their MPF accounts, went on to criticize MPF. However, MPF is indeed a long-term investment, the success of which should not be determined by only considering its performance in one or two years.
It is noteworthy that conservative funds which presented the best performance in the same period scored an average return rate of just 0.94%. Therefore, people who still have a long time before retirement will see their investment returns fall behind inflation if they concentrate most of their investments on conservative funds or cash. For this reason, I hope the Government can do a better job of educating the public so that they can understand that better management of their MPF accounts will naturally yield very different returns.
Despite the widespread fierce criticisms of MPF, in reality a phenomenon has emerged in that voluntary contributions have been on the rise both in amount and proportion. According to the figures in the third quarter of 2016 provided by MPFA, the amount of voluntary contributions by employees has increased from $260 million in 2006 to $6,674 million in 2015, representing a growth of 26 times in just nine years. I believe the public are smart to not have invested money in their MPF accounts for no good reason. Therefore, I hope everyone can understand that MPF accounts, if properly managed, can bring benefits indeed.
As for the offsetting mechanism, I am open about it and I hope all stakeholders, particularly employees and employers, can engage in discussion. At the introduction of MPF, the Government undertook to include the offsetting mechanism in exchange for support from the business sector. The mechanism was passed by the then Legislative Council and enacted into law. Therefore, the remarks made by some Members today, which referred to those employing the offsetting mechanism as unscrupulous employers, are just ignorant, biased and unfair. Even though it is a common belief that the offsetting mechanism is plagued with problems, it should be left to discussion between employees and employers. Today we can see the enormous impact the offsetting mechanism has caused on the grass roots. Yet the offsetting mechanism, once abolished, will also cause an enormous impact on small and medium enterprises (“SMEs”). In this case, both employers and employees have their own rationale for and difficulties in offsetting or otherwise. If no one budges an inch and the Government remains unwilling to provide financial assistance, I do not see any way out. Therefore, both parties should adopt a conciliatory approach and refrain from acting on impulse. We all should look at the big picture … to find a win-win solution.
Moreover, the Government should also try to seek new solutions to the problem, including the proposal made by Prof Lawrence LAU earlier, that is, the introduction of disability insurance and unemployment insurance by the Government in place of severance and long service payments. Sufficient financial assistance from the Government will definitely help forge a consensus between employees and employers.
Lastly, if the abolition of the offsetting mechanism is to be implemented, I hope there will be no retrospective period because employers already hold the anticipation that severance and long service payments can be offset, and so it will be unfair if they are required to make another payment. Moreover, the abolition should be implemented in phases to minimize the impact on the business sector, especially SMEs. I believe a wave of business closures induced by the abolition of the offsetting mechanism is the last thing the labour sector would wish to see.
I so submit.