10 May, 2017
(a) Default Investment Scheme (“DIS”)
With effect from 1st April 2017, there is an additional investment option under the MPF Scheme—Default Investment Scheme (“DIS”). DIS is a ready-made investment arrangement designed principally for MPF Scheme members who are not interested or do not wish to make a fund choice, and is itself an investment choice for members. If members do not make any fund choices for their MPF investments before 1st April 2017, the members will receive a DIS Reinvestment Notice (“DRN”) from the current trustee of the MPF scheme. If the members do not respond to the DRN within 42 days of the date of the DRN, the MPF contributions will be automatically invested in accordance with the DIS.
Although the DIS appears to be an option for the employees to opt for or opt out from, there are actions that the employers may consider to take so as to enable the employees to understand the changes, key features and risks brought by the DIS. Actions that the employers may take include:-
1) Organize talks or seminars and issue internal communications, such as by way of circulars, emails or newsletters, to introduce and highlight to the employees the features and details of the DIS;
2) Study the fund distribution profile chosen by the employees, in particular assessing the impact of the DIS on the employees who do not make any fund choices;
3) Prepare updated MPF plan welcome package for newly joined employees with new enrolment forms made available for use after 1st April 2017.
(b) MPF Off-setting Mechanism
After heated debates in the society for a period of time, the Chief Executive put forth in the 2017 Policy Address the proposal to progressively abolish the mechanism of “offsetting severance payments or long service payments” against the MPF contributions. Such abolition will not take effect retrospectively. To lessen the burden imposed on the employers upon abolition of the offsetting mechanism, the Government proposed to lower the amount of severance payment or long service payments from existing two-thirds of a month’s wages to 50% of the monthly wages as compensation for each year of service. Further financial support will be provided by the Government to help the employers, especially the SMEs, by sharing the expenses on the severance payments or long service payments in the 10 years after the implementation of the abolition.
Under the current MPF offsetting mechanism, only the employers’ portions of contributions to the MPF can be used to offset the severance payments or long service payments.
The proposed off-setting mechanism may bring mixed feelings to the employers and employees. To employers, abolition of off-setting mechanism means increased staff dismissal or redundancy cost, and possible “double payments” (i.e. making employer’s contributions to MPF scheme plus severance or long service payments). However, the proposed reduction of the amount of severance payment or long service payment, coupled with the financial support by the Government may, to certain extent, help to lessen the financial burden to the employers. The employees may benefit the most from such abolition since their benefits under the labour legislation would not be taken away by the current offsetting mechanism. The impact of such proposed abolition can hardly be assessed at this preliminary stage, not until the proposed bill is put forth by the Government.
For further information, please contact:
Vickie Leung, Deacons
vickie.leung@deacons.com.hk
