Starting May 1, 2025, the Hong Kong Special Administrative Region (HKSAR) government will abolish the Mandatory Provident Fund (MPF) offsetting mechanism, marking a major shift in how severance and long service payments are handled. This reform is a significant step forward for employee rights and retirement security, bringing Hong Kong in line with global best practices and reinforcing the city’s commitment to protecting workers’ futures.
What was the Offsetting mechanism?
Until now, employers could offset severance or long-service payments against the contributions they’d made to an employee’s MPF account. While this eased the immediate financial impact for employers, it came at the cost of the employees’ long-term retirement savings, which goes against the core purpose of the MPF system. The reform aims to change that, protecting employees’ retirement funds and redefining how termination-related compensation is handled. You can read more in the official document on the abolition of the MPF offsetting arrangement and the Employment and Retirement Schemes Legislation.
What’s Changing?
From May 1, 2025, employers can no longer use MPF contributions to offset severance or long service payments for any service period that begins on or after that date. For employees whose service spans both before and after this date, the calculations will be split:
- For service before May 1, 2025, offsetting is still allowed.
- For services after May 1, 2025, onward, employers must pay the full SP/LSP without deducting from MPF contributions
A “grandfathering mechanism” arrangement applies for employees hired before the transition date, with payments calculated in two portions, pre- and post-transition, ensuring a smoother shift for both employers and employees. The statutory cap of HK$390,000 remains in place.
Employers will now bear the full responsibility for severance and long service payments for service after May 1, 2025, and must ensure these payments are made directly, without drawing on MPF funds for the relevant employment period. This requires a thorough review and update of employment contracts, payroll systems, and HR policies to ensure compliance. Clear communication with employees about these changes is essential to maintain trust and understanding. Employers should also seek legal and financial advice to understand the full impact and prepare for the increased financial responsibility.
Here at Leap29, we see this reform as a positive move for Hong Kong’s workforce, strengthening retirement protection and aligning with the standards we see in leading global markets. We recommend employers act early-reviewing internal processes, updating contracts, and ensuring staff are informed of their entitlements. Our expansion services team is available to provide support on this major reform and check that your HR systems are set for digital processes like eVisa registration. Keeping your workforce updated with the changes and supporting them accordingly. Make sure your international employees know what’s changing and feel supported as they adjust, and with the government encouraging more local hiring, investing in training and upskilling your UK staff will help keep your business resilient for the future.
Leap29 understands that change is never easy and isn’t just about compliance – it’s about people, opportunity, and growth. We’re committed to helping our clients and candidates make sense of these changes, so if you’re an employer simply mapping out the future of your workforce or would need guidance, we are here to share tailored advice.
