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Hong Kong:
MPF update
When the final pieces of the Mandatory Provident Fund (MPF) legislation were passed in April, the Government was talking of a 1 January 2000 start date. The Government is behind schedule on appointing key staff to the MPF Authority, with the result that 1 July 2000 looks likely to be the earliest start date. There is little doubt that the Government is looking for the employer groups or finance industry to ask for more time, so that any delay does not appear to be at the instigation of the Government. It has also been rumoured that the Bank of China is a long way behind the other major institutions in their preparations for the MPF and the Government is trying to provide more time.
A number of the large financial institutions have invested heavily in preparing for the MPF, and the time horizon for a return on their investment is receding rather than drawing nearer. As a result, some are making vociferous protests in the press in an attempt to pressurise the Government into ending the delays and fixing a definitive MPF start date. Hong Kong’s economy has undoubtedly entered difficult times; if the economic problems still persist as 2000 draws near, a decision to defer the MPF start may be appropriate then.
As most Hong Kong employers do not have a retirement plan, they will have to put their employees into an MPF scheme which will result in a 5% payroll cost to employers and a 5% deduction to employees. Employers are unlikely to be able to meet the additional cost through price rises, given that Hong Kong is already overpriced. The more likely scenario is that they will try to contain pay rises or even impose pay reductions or, at the extreme, cut staff numbers. From the employees’ perspective the advent of the MPF will result in lower take home pay for many, but counterbalanced by the savings, albeit involuntary, that will start to accrue over the long term.
A definitive date for the start of the MPF needs to be decided as a matter of urgency, so that everyone can start planning for its implementation.
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