Abolition of MPF Offsetting Arrangement | Government Subsidy Scheme

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The Government will launch a 25-year subsidy scheme totaling $33.2 billion (at 2021 prices) to share out employers' expenses on post-transition portion of severance payment (SP)/ long service payment (LSP). Key points of the Government Subsidy Scheme are as follows:

There will be a specified share ratio in respect of the amount of SP/LSP payable to an employee by an employer each year.
The threshold for an employer's total expenses of SP/LSP in a year is set at $500,000. Specified share ratios/ "capped amounts" are set for cases falling within and beyond the threshold respectively.
For cases where the accumulated expenses of SP/LSP fall within $500,000, there will be a "capped amount" per case in respect of the SP/LSP payable by an employer for the initial nine years. If the shared amount payable by an employer calculated according to the share ratio exceeds the "capped amount", the employer only needs to pay the "capped amount". The remaining amount of SP/LSP will be subsidised by the Government.
For cases where the accumulated expenses of SP/LSP exceed $500,000, the amount payable by an employer is calculated according to the share ratio with no "capped amount". The remaining amount of SP/LSP will be subsidised by the Government.
Given that nearly 90% of micro, small and medium-sized enterprises have no more than $500,000 SP/LSP liabilities a year, they will generally be benefited from a higher subsidy for each SP/LSP case within the $500,000 threshold.
More subsidies are provided by setting a lower "capped amount" during the initial period. The "capped amount" of SP/LSP payable to an employee by an employer is as low as $3,000 for the initial three years. The subsidy level will be progressively reduced over the 25-year subsidy period to help employers gradually adapt to the policy change.

How to determine whether a case falls within the $500,000 threshold?

The $500,000 threshold refers to whether the accumulated amount of post-transition portion of SP/LSP payable by an employer during the same year exceeds $500,000:

How to calculate the amount of SP/LSP payable by an employer under the Government Subsidy Scheme?

For cases falling within the $500,000 threshold, please refer to the share ratio/amount payable by an employer in Table 1:

Table 1: Cases falling within the first $500,000

Year after the abolition	Employer's share ratio/ "capped amount" in respect of post-transition portion of SP/LSP per employee
1 – 3	50% or $3,000 (whichever is the lower)
4	55% or $25,000 (whichever is the lower)
5	60% or $25,000 (whichever is the lower)
6	65% or $25,000 (whichever is the lower)
7	70% or $50,000 (whichever is the lower)
8	75% or $50,000 (whichever is the lower)
9	80% or $50,000 (whichever is the lower)
10 – 11	80%
12 – 13	85%
14 – 19	90%
20 – 25	95%

For the initial nine years after the abolition:

If the amount calculated according to the share ratio is higher than or equals to the "capped amount", the employer only needs to pay the "capped amount". The remaining amount will be subsidised by the Government.
If the amount calculated according to the share ratio is less than the "capped amount", the employer shall pay according to the share ratio. The remaining amount will be subsidised by the Government.

For Year 10 to Year 25 after the abolition, no "capped amount" is set. The amount of post-transition portion of SP/LSP payable by an employer is calculated according to the share ratio of the respective year. The remaining amount will be subsidised by the Government.

For cases falling beyond the $500,000 threshold, please refer to the share ratio payable by an employer in Table 2:

Table 2: Cases exceeding $500,000

Year after the abolition	Employer's share ratio in respect of post-transition portion of SP/LSP per employee
1 – 3	50%
4	55%
5	60%
6	65%
7	70%
8	75%
9	80%
10	85%
11	90%
12	95%
13 – 25	100%

For cases falling beyond the $500,000 threshold, no subsidy will be provided from Year 13 onwards. If the amount of post-transition portion of SP/LSP of a case straddles across the $500,000 threshold, the share ratio/ shared amount payable by an employer is calculated on a pro-rata basis. For example, assuming an employer has already paid post-transition portion of SP/LSP for 12 employees totaling $470,000 in Year 3 after the abolition, when the employer has to pay $40,000 post-transition portion of SP/LSP to the 13th employee, $30,000 will fall within the $500,000 threshold and the remaining $10,000 will fall beyond the threshold. The amount payable by the employer in respect of the $30,000 falling within the $500,000 threshold will be calculated according to the share ratio/ shared amount in Table 1, with the "capped amount" calculated on a pro-rata basis as $2,250 (i.e. $3,000 × $30,000 / $40,000). For the remaining $10,000 falling beyond the threshold, the employer's share ratio/amount will be calculated according to Table 2, i.e. $5,000 ($10,000 × 50%).

Illustrative examples of the Government Subsidy Scheme

Employer's expenses on SP/LSP under the Government Subsidy Scheme

Example 1 For cases falling within the $500,000 threshold

Example 2 For cases falling within the $500,000 threshold

Example 3 For cases falling beyond the $500,000 threshold

Disbursement of Government Subsidy

Employers should pay SP/LSP to employees in accordance with the Employment Ordinance and then submit applications for disbursement of Government subsidy. Employers should prepare all supporting documents required when submitting their applications to facilitate approval of applications and disbursement of subsidies as soon as possible.

Eligibility for Government subsidy

Employees who are currently not covered by the MPF System or other statutory retirement schemes are not affected by the abolition of MPF offsetting arrangement. Their employers will not be eligible for Government subsidy.

Public bodies/subvented organisations will not be eligible for Government subsidy if their employees' SP/LSP has been fully funded by the Government.