The cancellation of the Mandatory Provident Fund (MPF) offsetting arrangement took effect on May 1, 2025, coinciding with International Labour Day. This significant reform means that employers can no longer use the accrued benefits from mandatory MPF contributions to offset severance payments and long-service payments that arise after the transfer date. However, employers can still use voluntary contributions and contractual gratuities tied to employees' years of service for offsetting purposes.
According to the Labour Department, this cancellation is not retroactive. Severance payments and long-service payments accrued by current employees before May 1 can still be offset after the new rules come into effect. This change applies not only to the MPF system but also to occupational retirement schemes under the Occupational Retirement Schemes Ordinance and certain school provident fund schemes.
To support employers during this transition, the government has launched the "Subsidy Scheme for Cancellation of MPF Offsetting Arrangement," which will provide over HKD 33 billion in subsidies over the next 25 years. Employers are required to pay severance and long-service payments to employees first, according to the Employment Ordinance, before applying for subsidies from the Labour Department.
Chris Sun, Secretary for Labour and Welfare, emphasized the long-term benefits of this new arrangement for employees. He stated that the measures will significantly enhance employees' ability to prepare for retirement with more money. Sun pointed out that there is no need for employers to worry about potential job losses as a result of this policy change. He noted, "This is a major change in the system; from today, employers can no longer use MPF mandatory contributions to offset severance payments or long-service payments during the employment period." He also reassured that the system does not have a retroactive period, meaning that payments before May 1 can still be offset.
In response to concerns that employers might dismiss older employees to avoid paying severance or long-service payments, Sun explained that the current labor market is tight. He argued that hiring new employees involves costs for training and familiarization, which may not outweigh the perceived savings from dismissing seasoned workers. He stated, "The cost of hiring and training new employees, plus the seniority and related expenses of old employees that can be offset, may not be worth the loss for employers."
Labour unions have expressed concerns that some employers might still attempt to circumvent the new regulations by dismissing employees before the effective date. They have urged the government to provide clearer explanations and guidance on the new rules to prevent misunderstandings. Union representatives believe that it is crucial for the Labour Department to monitor employer compliance closely.
Meanwhile, small and medium-sized enterprises (SMEs) have voiced concerns about the increased operational costs resulting from the policy change. Some business owners have indicated that they will need to adjust their budgeting and financial planning to accommodate the new requirements. They are exploring options such as voluntary contributions under the MPF to manage these costs more effectively.
In a related development, the new statutory minimum wage level of HKD 42.1 per hour also took effect on May 1, 2025. This adjustment means that all employees, regardless of their employment type, are entitled to this minimum wage protection. Additionally, the monthly cap on the total number of hours worked that employers must record has increased from HKD 16,300 to HKD 17,200 to align with the new minimum wage.
As businesses navigate these changes, many are participating in seminars and workshops to better understand the implications of the new MPF regulations. Business leaders are collaborating with financial institutions to develop additional savings products to help manage the increased costs associated with severance and long-service payments.
In summary, the cancellation of the MPF offsetting arrangement marks a significant shift in employee retirement protection in Hong Kong. With the government providing substantial financial support through the new subsidy scheme, it is hoped that employers will adapt smoothly to the changes while ensuring that employees benefit from enhanced retirement security.
