MPF under threat

The economic mayhem caused by the outbreak of the severe acute respiratory syndrome (Sars) virus is prompting opponents of Hong Kong's Mandatory Provident Fund (MPF) scheme to pressure the government to trim or suspend contributions.

The Hong Kong Retirement Schemes Association (HKRSA) yesterday penned a letter to Hong Kong's chief executive, Tung Chee-wha, urging the government not to tamper with MPF.

This is the second time since MPF's launch in January 2001 that it has come under threat of being shut down. The terrorist attacks of September 11, 2001 worsened a global economy, hurting local small businesses. Tung did not endorse efforts to curb contributions, but significantly, he left out any mention of MPF in his subsequent public addresses, failing to publicly defend the programme.

In the end the minimum monthly wage level to require MPF contributions was raised last year from HK$4,000 to HK$5,000, a move welcomed by small companies and low-income workers but one that will exacerbate pressures on taxpayers in the future to pay for old-age services.

Now the economic devastation caused by Sars is hitting small companies hard. Hotels and restaurants, for example, face the prospect of closing. James Tien, chairman of Hong Kong's Liberal Party, says since the outbreak of Sars, turnover for consumer businesses is down as much as 90%. He is calling for the suspension of statutory contributions to MPF. Tien's office did not return phone calls yesterday.

The Tung administration is under severe pressure to come up with short-term measures to placate an unhappy population. "The government is terrified of rising unemployment," says Stuart Leckie, chairman of the HKRSA. "It may lead to further deflation, which would only worsen the economic slowdown."

Nonetheless, Leckie believes that "common sense" dictates the government leave MPF contributions alone. Small- and mid-size employers have always opposed MPF and while many are suffering, they are using Sars as a convenient opportunity to end MPF, Leckie fears. "The larger companies are trying to be more far-sighted," he adds.

Lau Ka-shi, executive director at Bank Consortium Trust, an MPF service provider with a large clientele of casual workers in the catering and construction industries, says the main purpose of MPF is to benefit the working public in the long term, and that any freeze on contributions will only lead to an increased burden on the public purse.

"MPF was negotiated over 10 years," she says. "The rationale is there, it looks at the long run, not economic cycles. It's only been operating for two years. With so many global financial institutions participating in the scheme, the government's credibility is at stake. How can these institutions trust the government if it now halts this programme?"

She also notes that while employers may feel like they're getting pinched by MPF contributions, they have long-term benefits in lower service and severance payments. "MPF contributions aren't down the drain," she says.

Industry players are also concerned that any cut or freeze on contributions would throw into question when these would be restored. In the worst case, they are fighting for automatic return to present rates to be mandated in any legislative amendment.

A freeze in MPF contributions would create new pain for service providers, which would still have to administrate existing accounts, which is costly, while losing the revenues of incoming assets. Such a move by the government would probably force several marginal providers out of the market.

Worse, it would negatively impact low-income workers, the ones who need MPF the most, by curbing their retirement savings. With an aging population, the government already faces a rising burden for social assistance. Tampering with MPF will only increase the government's - and the taxpayers' - long-term obligations, argue industry executives.