Frequently Asked Questions

The Government has announced that the abolition of offsetting arrangement will take effect on 1 May 2025.

According to the existing Employment Ordinance (EO), the calculation of SP/LSP for monthly rated employees* is two-thirds of the last monthly wages before termination of employment, subject to a monthly wage ceiling of $22,500, for each year of service; and the maximum payment of SP/LSP is $390,000. These ceilings of SP/LSP will remain unchanged after the abolition of MPF offsetting arrangement.

* The calculation for daily-rated/ piece-rated employee is any 18 days' wages chosen by the employee out of his/her last 30 normal working days before termination of employment for each year of service, and the sum should not exceed 2/3 of $22,500. An employee may also elect to use his/her average wages in the 12 months before the termination of employment for the calculation.

• If an employee's employment commences on or after the commencement date of the abolition of MPF offsetting arrangement (transition date)

  If an employee's employment commences on or after the transition date, his/her SP/LSP will be calculated according to the existing provisions of EO as stipulated above. The calculation remains unchanged.

• If an employee's employment commences before the transition date

  If an employee is already in employment before the transition date, his/her SP/LSP will be comprised of two portions, namely pre-transition portion and post-transition portion.

Pre-transition portion:

• The last full month's wages immediately preceding the transition date × 2/3 × years of service before the transition date

Post-transition portion:

• The last full month's wages before termination of employment × 2/3 × years of service starting from the transition date

Example

If the employment period before the transition date of a monthly-rated employee is less than 1 month, his/her pre-transition portion of SP/LSP is calculated using the first full month's wages after commencement of employment. For a non-monthly-rated employee whose employment period before the transition date is less than 30 days, his/her pre-transition portion of SP/ LSP is calculated using the sum of any 18 days' wages chosen by the employee out of his/her first 30 normal working days after the commencement of employment.

If the total SP/LSP of an employee exceeds the maximum payment of $390,000 as stipulated in EO, the amount in excess will be deducted from the post-transition portion. In other words, the amount of pre-transition portion of SP/LSP remains unchanged, subject to a maximum of $390,000, whilst the amount of post-transition portion of SP/LSP will be the remainder of $390,000 minus the amount of pre-transition portion.

Example

Currently, the accrued benefits derived from employer's MPF contributions (including mandatory and voluntary contributions) as well as gratuities based on employees' years of service can be used for offsetting an employee's SP/LSP.

Accrued benefits derived from employers' mandatory MPF contributions (ERMC)

After the abolition of MPF offsetting arrangement, employers can no longer use ERMC to offset an employee's SP/ LSP in respect of the employment period starting from the transition date (i.e. the post-transition portion).

The abolition has no retrospective effect. If an employee commences employment before the transition date, employers can continue to use the accrued benefits derived from their MPF contributions (irrespective of the contributions made before, on or after the transition date, and irrespective of mandatory or voluntary contributions) to offset SP/LSP in respect of the employment period before the transition date (i.e. the pre-transition portion).

Example

Accrued benefits derived from employer's voluntary MPF contributions (ERVC)

ERVC can continue be used for offsetting SP/LSP (irrespective of pre-transition or post-transition portion of SP/LSP).

Gratuities based on years of service

Gratuities based on employee's years of service can continue be used for offsetting SP/LSP (irrespective of pre-transition or post-transition portion of SP/LSP).

After the abolition of MPF offsetting arrangement, the aggregate benefits (i.e. SP/LSP and ERMC in their MPF accounts) received by the vast majority of employees, including employees with long years of service, will be higher than that under the current offsetting regime. It is because employers can no longer use ERMC to offset employees' post-transition portion of SP/LSP, thereby employees can retain more MPF accrued benefits for retirement protection. For those employees whose pre-transition portion of SP/ LSP has already reached the maximum amount, the aggregate benefits received by them after the abolition would not be less than that under the current offsetting regime.

For those employees whose employment commences after the transition date, the aggregate benefits received by them after the abolition of MPF offsetting arrangement would not be less than that under the current offsetting regime. For those employees whose employment commences before the transition date, the aggregate benefits received by them after the abolition would generally be higher than that under the current offsetting regime.

Under special circumstances, the aggregate benefits received by employees after the abolition would be less than that under the current offsetting regime, for example:

• (a) the employee has a substantial pay rise after the transition date and thus the wage rate for calculating pre-transition portion of SP/LSP (i.e. the monthly wages immediately preceding the transition date) would have a greater disparity when comparing with existing calculation;
• (b) the pre-transition employment period is long, and thus the above effect is amplified ; and
• (c) the post-transition employment period is short, and thus the employee's benefits gained from the abolition are relatively small.

The Government anticipated that there will not be many such cases and their number would gradually decrease when the post-transition employment period of employees is getting longer and fewer employees would have employment period straddling across the transition date. The Government has undertaken to make up for the shortfall should any such case arise so as to ensure that no employee would be worse off due to policy change.

To reduce the risk of dismissal before the transition date, the abolition of MPF offsetting arrangement will have no retrospective effect. The following arrangements will be put in place in respect of the pre-transition portion of SP/LSP of employees whose employment commence before the transition date:

• Pre-transition portion of SP/LSP will be calculated on the basis of the wage rate as at the transition date instead of that at the termination of employment. As such, regardless of any increase in salary or length of employment after transition date, the amount of pre-transition portion of SP/LSP would be the same as if an employee's employment was terminated before the abolition; and
• Employers can continue to use ERMC to offset employees' pre-transition portion of SP/LSP. As such, employers should not dismiss employees (especially those with longer years of service) before the transition date in order to use ERMC to offset SP/LSP before the abolition takes effect.

Employers dismissing existing employees and hiring new employees will incur higher SP/LSP expenses because the accrued benefits derived from ERMC in respect of existing employees' whole employment period can continue to be used to offset their pre-transition portion of SP/LSP. Retaining existing employees allows ERMC to grow, which can be used to offset employees' pre-transition portion of SP/LSP in future.

Example 1

Besides, the maximum amount of SP/LSP (i.e. the sum of pre-transition portion and post-transition portion of SP/LSP) remains $390,000 after the abolition. The amount in excess will be deducted from the post-transition portion.

Assuming an employee's SP/LSP has already exceeded $390,000 before the transition date, and the employer continues to hire that employee after the abolition. Since the amount in excess of the cap will be deducted from the post-transition portion, his/her total amount of SP/LSP would not increase and can still be offset by ERMC no matter when the employee leave employment after the transition date. On the contrary, if the employer dismisses the employee before the transition date and hire a new employee, the new employee's SP/ LSP will build up afresh to a maximum of $390,000, which cannot be offset by ERMC. This will incur higher SP/LSP expenses for the employer.

Example 2

The abolition of MPF offsetting arrangement is also applicable to ORS exempted under the Mandatory Provident Funds Schemes Ordinance (MPFSO). Since the employers' contributions under ORS are not differentiated into mandatory or voluntary portions, a portion of benefits ("carved-out benefits") will be calculated and carved out from employee's vested benefits using the below formula -

Final average monthly relevant income* × Years of service with ORS benefits × 5% × 12

* "Final average monthly relevant income" means the employee's average monthly relevant income in the 12 months immediately preceding the termination of employment, subject to the maximum level of relevant income under MPFSO. The current monthly maximum relevant income level is $30,000.

"Carved-out benefits" is akin to the accrued benefits derived from employers' mandatory MPF contributions, whilst the remainder of vested benefits after carving out the "carved-out benefits" is akin to the accrued benefits derived from employers' voluntary MPF contributions.

If an employee commences employment after the transition date, the "carved-out benefits" cannot be used to offset SP/LSP, whilst the remainder of vested benefits after carving out the "carved-out benefits" can be used to offset SP/LSP.

If an employee commences employment before the transition date, his/her SP/LSP will be divided into the pre-transition portion and the post-transition portion. The "carved-out benefits" can only be used to offset pre-transition portion of SP / LSP, whilst the remainder of vested benefits after carving out the "carved-out benefits" can be used to offset pre-transition and/or post-transition portions of SP/LSP.

Example 1

Example 2

Apart from MPF schemes, the abolition of MPF offsetting arrangement will also be applicable to ORS exempted under MPFSO, the two school provident funds regulated by the Grant Schools Provident Fund Rules and Subsidized Schools Provident Fund Rules under Education Ordinance, and overseas ORS of employees from outside Hong Kong which are exempted from the MPF System. The abolition of the offsetting arrangement for the above schemes/funds will take effect on the same date as the abolition of the offsetting arrangement for MPF System.

The abolition of MPF offsetting arrangement will not be applicable to employees who are currently not covered by the MPF System or other statutory retirement schemes (including overseas and local domestic helpers, and employees below the age of 18 or at the age of 65 or above). Their SP/LSP, if applicable, will continue to be calculated according to the existing provisions of EO.

According to the existing EO, employers must at all times keep wage records of each employee covering the period of his/her employment during the preceding 12 months, and the records should be kept for a period of another 6 months after the employee ceases to be employed.

After the abolition of MPF offsetting arrangement, an employer must keep wage records covering an employee's employment period during the 12 months immediately preceding the transition date until 6 months after the employee ceases to be employed. This can facilitate the calculation of the employee's pre-transition portion of SP/LSP when necessary.