Effective Date: May 1, 2025

On June 9, 2022, the Legislative Council passed the Employment and Retirement Schemes Legislation (Offsetting Arrangements) (Amendment) Bill 2022, abolishing the use of Mandatory Provident Fund (MPF) employer contributions to offset Severance Payments (SP) and Long Service Payments (LSP). This major reform will take effect from May 1, 2025 ("Transition Date").

Key Changes After May 1, 2025

1. Changes to Offsetting Arrangements

For Employment Before May 1, 2025 ("Pre-Transition Period")

1. Employers can continue to use MPF mandatory contributions (ERMC) to offset SP/LSP for years of service before the transition date.
2. Employers can also continue using MPF voluntary contributions (ERVC) and gratuities to offset SP/LSP, regardless of service duration.

For Employment On or After May 1, 2025 ("Post-Transition Period")

1. Employers can no longer use MPF mandatory contributions (ERMC) to offset SP/LSP for years of service starting from the transition date.
2. However, MPF voluntary contributions (ERVC) and gratuities can still be used to offset SP/LSP, regardless of service before or after the transition date.

2. Impact on Occupational Retirement Schemes (ORS)

The abolition of MPF offsetting also applies to employees under Occupational Retirement Schemes (ORS), including:

1. ORS exempted under the MPF Schemes Ordinance (MPFSO)
2. Provident funds under the Grant School Provident Fund Rules and the Subsidized Schools Provident Fund Rules
3. Overseas ORS for non-local employees exempted from MPF

Vested Benefits Classification Under ORS

1. "Carved-out benefits" (similar to ERMC): Cannot be used to offset SP/LSP for employment periods on or after May 1, 2025 and can still be used for SP/LSP for service periods before May 1, 2025.
2. "Remaining benefits" (similar to ERVC): Can continue to offset SP/LSP for all service periods, including those before and after the transition date.

3. Who Is Affected?

The new arrangement does not apply to employees who are not covered by MPF or other statutory retirement schemes, such as:

1. Domestic helpers
2. Employees under 18 or over 65 years old

Since employers are not required to contribute to MPF for these employees, they remain unaffected by the abolition of the offsetting arrangement. Their SP/LSP will still be calculated based on:

1. Last month’s salary before termination, OR
2. Average salary over the last 12 months before termination, following the Employment Ordinance.

4. Why Is This Change Important?

The abolition of the MPF offsetting arrangement marks a major shift in Hong Kong’s employment and retirement benefits system. Employees will receive full severance and long service payments without deductions from their MPF mandatory contributions, ensuring greater financial security upon job termination.

Employers should review their financial planning and consider alternative strategies for managing severance and long service payments.

Next Steps & More Information

To prepare for these changes, employers and employees should stay informed and plan ahead. For official details, visit:

1. MPF Offsetting Abolition: After May 1, 2025
2. MPF Offsetting: Before May 1, 2025
3. Occupational Retirement Schemes & MPF Offsetting