【Members】Executive Summary for Members Companies for HKJMA: Abolition of the MPF Offsetting Arrangement

2023-04-27 Executive Summary of MPF setoff arrangement


Employers will soon not be allowed to use accrued benefits of employers’ mandatory contributions under the Mandatory Provident Fund (“MPF”) system to offset (i) severance payment (“SP”); and (ii) long service payment (“LSP”).1 At the same time, any accrued benefits derived from employers’ voluntary contributions or gratuities based on length of service can still be used to offset employees’ SP or LSP. This is scheduled for implementation in 2025 with full operation of eMPF Platform, to be operated by the Government.

Possible Effects

Large-scale employee dismissals are speculated before the implementation in 2025. As such, a “grandfathering” arrangement will be put in place for the pre-implementation portion of SP/LSP of employees who are already in employment before the implementation date. The reason for this is because upcoming changes will have no retrospective effect.

Before and After the Implementation Date

Pre-Implementation Date

(for employment period commenced before the Implementation Date)

Employers can continue to use accrued benefits2 derived from both employer’s mandatory and voluntary contributions to offset an employee’s SP or LSP entitlements before the implementation date.

The calculation of SP or LSP payable to a monthly-rated employee is as follows:

= Employee’s last full month’s wages immediately preceding the implementation date (capped at HK$22,500) × 2/3 × years of service before implementation date

Post-Implementation Date

(for employment commenced before the Implementation Date and the termination of employment occurs on or after the Implementation Date)

Employers can only use the accrued benefits derived from their voluntary MPF contributions for offsetting the employees’ SP or LSP entitlements, not the Mandatory Contribution portion.

The calculation of SP or LSP payable to a monthly-rated employee

= Employee’s last full month’s wages before termination of employment (capped at HK$22,500) × 2/3 × years of service after implementation date

The ceiling amount on monthly wages for calculating SP or LSP (i.e. $22,500) and the maximum payment of SP or LSP (i.e. $390,000) remains unchanged.3


If an employer has employed an employee with 4 years’ service before the implementation date and continues to employ the employee for 3 years after the implementation date (i.e. 7-year of employment). The employee’s last monthly wages are $15,000 preceding the implementation date and $18,000 at the time of dismissal. The calculation and offsetting arrangement of the employee’s SP/LSP are as follows:


SP/LSP of the employee

  1. Pre-Implementation Date portion of SP/LSP

  2. Post-Implementation Date portion of SP/LSP (cannot be offset by employer’s mandatory contributions)


$15,000 × 2/3 × 4 years = $40,000

$18,000 × 2/3 × 3 years = $36,000



Employer’s mandatory contributions in respect of the 7-year employment (assuming the employee has been given only one wage increase, which takes effect on the Implementation Date and employer’s mandatory contributions have no profit or loss)

$68,400 (can only be used to offset the Pre- Implementation Date portion of SP/LSP)


Employer’s mandatory contributions retained in the employee’s MPF account after offsetting

$68,400 – $40,000 (Pre-implementation portion) = $28,400

Total amount of benefits of the employee


Total to be paid out by employer in cash on last date of employee’s employment:

$76,000 (SP/LSP) + $28,400 (accrued benefits of mandatory contributions retained in the employee’s MPF account)




The abolition of MPF offsetting arrangement is also applicable to occupational retirement schemes that are granted exemption under the Mandatory Provident Fund Schemes Ordinance (Cap. 485).4


The abolition of MPF offsetting arrangement is not applicable to employees who are currently not covered by the MPF System or other statutory retirement schemes (including foreign and local domestic helpers, and employees aged less than 18 or more than 65 or above).

Important note:

This explanatory note is not, and should not be regarded as, legal advice. Should you have any enquiries, please seek specific advice from legal advisers.

For any further information on the calculation of SP or LSP, you may refer to calculation tool set up by the Labour Department at https://www.op.labour.gov.hk/en/calculator.html.

1 This stems from the Employment and Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Bill 2022 passed by the Legislative Council on 9 June 2022. Currently, both employer and employee have to make monthly contributions of 5% of an employee’s relevant income per month, capped at HK$1,500 per month (the “Mandatory Contributions”). This was first introduced in December 2000 that employers can offset the LSP/SP payable to employees under the Employment Ordinance (Cap. 57) (the “EO”) against the MPF derived from the employer’s (i) mandatory contributions; and (ii) voluntary contributions.

2 Accrued benefits include the MPF contributions as well as the investment return attributable to the employer’s voluntary contributions.

3 An illustrative example of this can be found from the Labour Department at https://www.labour.gov.hk/common/public/pdf/opd/FAQs_aoa_en.pdf

4 Two school provident funds under the Grant Schools Provident Fund Rules (Cap. 279C) and Subsidized Schools Provident Fund Rules (Cap. 279D) and overseas occupational retirement schemes joined by employees from outside Hong Kong which are exempted from the MPF System.