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MPF updates – what you should know

By Alex Liu

Hong Kong, 14 August 2023: Employers are advised to take note of recent important developments in the government’s drive to overhaul the Mandatory Provident Fund (MPF) system. Being aware of the financial implications and preparing for change now may save a great deal of heartache further down the line.

Most significantly, the date for the abolition of “offsetting” – the regulation that allows employers to use MPF contributions to make severance and long service payments to workers – has been confirmed. It will come into force on 1 May 2025, coinciding with Labour Day. Announcing the landmark date, Chief Executive John Lee has called it “an important milestone in strengthening retirement protection for employees” and an opportunity for them to “share the fruits of economic development”.

To recap, in general terms the MPF system requires employees and employers to each make contributions of 5% of the employee’s income towards a personal retirement fund. The system complements other voluntary schemes and statutory pensions in the territory, meaning around 85% of workers now have some sort of retirement planning.

Presently, employers are entitled to deduct severance or long service payments from their portion of MPF contributions. This will change from Labour Day 2025. The offsetting mechanism will still apply to pension funds contributed before then, but employees’ pension funds accrued after that will be protected by the new law even if they are dismissed or laid off.

The abolition of offsetting, while welcomed by trade unions and NGOs, has generated concern among employers since they are expected to shoulder much of the cost, even allowing for the government’s pledge to provide support for severance payouts via a 25-year, HK$33 billion subsidy scheme.

For the first three years of the scheme, employers will only be liable to pay each employee HK$3,000 if the total amount owed to dismissed workers in a year does not exceed HK$500,000, with the government footing the rest of the bill. After that, the payment cap for employers will gradually rise, with subsidies correspondingly reduced. From 2035, employers will have to shell out 80% of the payments without a cap. From 2050, they will need to pay in full.

While these measures have been confirmed, the government is having second thoughts about its proposed Designated Savings Accounts (DSA) Scheme under which employers would be mandated to save up for their future severance pay liabilities. Secretary for Labour and Welfare Chris Sun revealed in May that a consultant had been hired to consider the issue, noting that administrative fees were a concern. “We estimate that it will cost a lot to regulate more than 300,000 employers’ accounts,” he admitted. Further information is expected by the end of this year.

There are also suggestions the MPF Schemes Authority will conduct a review of the minimum and maximum relevant income levels for MPF contributions. Given that it is almost a decade since these were adjusted, the business sector is expecting an increase, although it could be implemented in stages to alleviate the impact on employers and employees as Hong Kong continues its post-pandemic recovery.

Finally, it is worth noting the MPF Schemes Authority’s long-awaited eMPF Platform is due to commence operations in the second quarter of next year. The one-stop digital platform is intended to streamline administration, cut costs and make fund management more transparent. The city’s MPF providers will be migrated to the platform in phases with the aim of it becoming fully operational by 2025. The government estimates MPF administration fees will be halved within a decade as a result.

As all these developments demonstrate, Hong Kong’s MPF evolution is gathering pace. Employers are strongly advised to familiarise themselves with the changes and be aware of their obligations. As ever, we recommend seeking legal advice if clarity is required.

Alex Liu is Managing Partner of BC&C. His key areas of practice include commercial and corporate litigation, investigations by governmental bodies such as the SFC, ICAC and Commercial Crime Bureau, insolvency and debt restructuring, intellectual property and employment matters. He can be contacted at

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