To enhance members' retirement protection, individuals and groups from various sectors have long advocated for the abolition of the offsetting mechanism that allows employers to use their contributions to the Mandatory Provident Fund (MPF) to offset severance or long service payments. After years of discussion and with the financial support of the government, the offsetting mechanism will be abolished starting May 1 this year. The method for calculating long service or severance payments, as well as the eligibility criteria, will remain unchanged. However, due to the "cut-off line" and transitional arrangements before and after the transition date of May 1, it will take some time before employees fully benefit from the change.
Transition date takes effect on May 1
The “cut-off line” refers to the arrangement whereby MPF employer contributions accumulated before May 1 (the transition date) can still be used to offset long service or severance payments earned before that date. Only payments calculated in respect of service after May 1 will no longer be offset by the employer’s mandatory MPF contributions. For example, if an employee joined on May 1, 2020, and retires on April 30, 2026 upon reaching age 65, and is eligible for long service payment, the calculation based on the monthly wage cap of HKD 22,500 and pre-transition service would be 2/3x 22,500 x 5 yrs = HKD75,000, which can be offset; while the long service payment after the transition date would be 2/3x 22,500 x 1 yr = HKD10,000, which cannot be offset. In addition, if the employer has made employer voluntary contributions, those can still be used to offset long service or severance payments, regardless of whether they are calculated before or after the transition date.
Long-serving employees may not benefit
Employees should also note that the HKD 390,000 cap on long service or severance payments remains unchanged. If an employee’s years of service and salary before the transition date are such that the long service or severance payment already reaches this cap, they may not benefit from the abolition of offsetting.
Post-transition service accrual increases benefits
As employees accrue more years of service after the transition, the benefits of the new system will gradually increase. Using the wage cap of HKD 22,500 per month, each employee will accrue HKD 15,000 per year of service.
Reduced loss of benefits strengthens retirement protection
For employees who join after the transition date, employers can no longer use the mandatory MPF contributions to offset severance or long service payments. This change will reduce the loss of employees’ MPF benefits and will gradually strengthen their retirement protection.
| Title | File Type | File Size |
|---|---|---|
| Phasing out MPF offsetting will strengthen retirement protection | .5 MB |
