Abolition of MPF Offsetting Arrangement in Hong Kong: What Employers Must Know (Effective 1 May 2025)

i-admin Singapore
May 7
2 min read

A major shift is coming to Hong Kong’s employment landscape. Starting 1 May 2025, the Mandatory Provident Fund (MPF) Offsetting Arrangement will be abolished.

This change significantly impacts how employers manage severance payments (SP) and long service payments (LSP), requiring updated HR and payroll strategies to stay compliant.

Here’s what you need to know.

What Is Changing?

Effective from the transition date:

Employers can no longer use the accrued benefits from their mandatory MPF contributions to offset an employee’s severance or long service payments.
Voluntary MPF contributions and gratuities based on length of service can still be used to offset SP/LSP.

This reform strengthens employee protection, ensuring that their retirement savings remain intact even after employment ends.

Understanding the "Grandfathering" Arrangement

To prevent mass dismissals ahead of the transition, a "grandfathering" arrangement has been introduced for employees hired before 1 May 2025:

Pre-transition portion (service before 1 May 2025):
- Based on the employee’s monthly wages immediately before the transition date.
- Employers can still offset this portion using any MPF contributions (mandatory or voluntary).
Post-transition portion (service from 1 May 2025 onward):
- Calculated based on the employee’s last monthly wages before termination.
- No offsetting is allowed using MPF accrued benefits.

⚡ Important: The total SP/LSP amount remains capped at HKD $390,000. Any excess will be deducted from the post-transition portion.

How Will SP/LSP Be Calculated?

After the abolition of the offsetting arrangement, the calculation will be split:

Employment period before 1 May 2025:
Last full month's wages before the transition × 2/3 × years of service before transition.
Employment period starting from 1 May 2025:
Last full month's wages before termination × 2/3 × years of service after transition.
Wage Ceiling for Calculation:
Monthly wages are capped at HKD $22,500, with a maximum SP/LSP payout of HKD $390,000.

Next Steps for Employers

Review HR and Payroll Policies: Ensure severance and long service payment procedures align with the new rules.
Update Employee Contracts and Documentation: Clarify SP/LSP entitlements for both existing and new hires.
Educate Your Teams: Inform HR, legal, and management teams to avoid compliance issues.
Plan Financially: Prepare for potential increases in SP/LSP costs that can no longer be offset with mandatory MPF contributions.