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Starting from May 1, 2025, Hong Kong will abolish its Mandatory Provident Fund (MPF) Offsetting Scheme. This change aims to ensure that employees receive their full severance and long service payments without any deductions from their MPF retirement savings. Here is an overview of what employers need to know:
What is the MPF Offsetting Scheme?
The MPF Offsetting Scheme allows employers to use their contributions to an employee’s MPF account to offset severance payments (SP) or long service payments (LSP). This means employers can deduct these payments from the employee’s MPF savings instead of paying them entirely out of pocket.
Why is the MPF Offsetting Scheme being abolished?
This Scheme has been criticized for reducing employees’ retirement savings. To address this, the Hong Kong government will eliminate the MPF Offsetting Mechanism on May 1, 2025, ensuring workers receive their full SP or LSP without any money taken out of their MPF accounts.
What are the consequences for Employers?
- Additional Costs
Employers can no longer use MPF contributions to offset SP and LSP which means they have to bear the full cost of SP and LSP. Employers must budget for this, which may increase financial strain, particularly for small and medium-sized businesses (SMEs).
2. Legal Requirements for record keeping
Under the MPF offset scheme, Employers are required to keep wage records for each employee covering the preceding 12 months of their employment and retain them for six months after the employee leaves.
After the MPF offsetting abolition, Employers must also keep wage records for employees hired before the transition date, specifically covering the 12 months before 1 May 2025, until six months after the employee leaves. This ensures accurate calculation of the pre-transition portion of SP and LSP when needed.
- Accounting Impacts
With the abolition of the MPF offset scheme, Companies now need to recognize the full liability for LSP and SP in their financial statements, potentially leading to increased reported liabilities.
Government Support for Employers
The Hong Kong government will implement a 25-year subsidy scheme to help employers cover the costs associated with SP and LSP. The subsidy will decrease over time, with specific caps and employer contribution percentages outlined for each period:
| Period | Employer’s Contribution | Cap per Employee | Key Points |
| Years 1–3 (2025–2028) | 50% | HK$3,000 | If SP/LSP is HK$10,000, Employer pays HK$3,000. |
| Year 4 (2029) | 55% | HK$25,000 | If SP/LSP is HK$40,000, Employer pays HK$25,000. |
| Year 5 (2030) | 60% | HK$25,000 | Employer pays 60%, cap remains at HK$25,000. |
| Years 6–9 (2031–2034) | Increases 5% each year | HK$25,000 (Years 6) then HK$50,000 (Year 7) | Employer share increases by 5% yearly. Cap increases to HK$50,000 in Year 7. |
| Years 10–11 (2035–2036) | 80% | No cap | Employer pays 80%. |
| Years 12–25 (2037–2050) | 100% | No cap | Employer gradually reaches 100% by Year 13. Government subsidy ends after Year 25. |
In summary, the abolition of the MPF Offsetting Scheme is a significant change and Employers must prepare for increased operational costs and adjust their financial and record-keeping practices accordingly. Our team can assist you with this, so please do not contact us through Please do not hesitate to contact us through contact@orbis-alliance.com.