The Government’s proposal to abolish the offsetting of severance payments or long-service payments with Mandatory Provident Fund contributions is the most optimal option devised so far.
Chief Executive CY Leung made the statement after the Executive Council endorsed the proposal today.
Mr Leung said he outlined a concrete proposal in his Policy Address this year, which balanced the interests of employers and employees.
The proposal sets no retrospective effect, which means employers’ MPF contributions before the proposal’s implementation will be “grandfathered”.
The Government has earmarked $7.9 billion to help employers in the 10 years after the abolition is implemented.
Employers’ reserve for long service payments is tax free, which will reduce government revenue by $18 billion.
The amount of severance payments or long service payments payable after the effective date will be adjusted downwards from the existing entitlement of two-thirds of the last month’s wages to half of the last month’s wages as compensation for each year of service.
Chief Secretary Matthew Cheung said the unprecedented move shows the Government has the determination and political courage to tackle the problem.
He added it is important for companies to slowly adapt to the change.
Taking into account the views of employers and employees, he said the Government has reviewed the proposal and analysed counter-proposals raised by various parties.
Secretary for Labour & Welfare Stephen Sui said the Government’s proposal remains the most optimal option to date.
