The Mandatory Provident Fund (MPF) stands as a strong pillar for retirement planning in Hong Kong. As the abolishment of MPF Offsetting Scheme on 1 May 2025, which prevents employers in using their MPF contributions to offset severance and long service payments. Thus 2025 draws nearer, major legal MPF updates and changes are on their way. These reforms will reshape how businesses handle their employees’ retirement savings.
Under the new system, the employers must pay the benefits full while maintaining complete employee retirement funds.
This guide walks through the essential MPF legal updates for employers in 2025. You will get clear and useful tips to act on with the recent insights.
The Abolition of MPF Offsetting Scheme
What is MPF Offsetting and Why it is ending?
Since MPF was introduced on 2000, employers have been using it frequently in a way of MPF contributions reducing the amount payable to employees as severance payment (SP) or long service payment (LSP). This has undergone unfair allowing employers dip into the employees’ retirement savings to fulfil statutory obligations.
After years of public concern and policy debate, the Legislative Council declared the Employment and Retirement Schemes Legislation (Offsetting Arrangement Amendment) Bill on 9th June 2022. Later, as a result the offsetting mechanism has abolished officially on 1st May 2025.
What are the upcoming MPF updates after 1st May 2025?
As said before, once the new regulation comes into effect, employers will be having no chance of using mandatory contributions to offset SP or LSP. However, the voluntary employer contributions and contractual gratuities benefits can be offered based on the length of the service during employment.
Also, in addition to ease the shift and reduce the risk of pre-transition terminations, a “grandfathering” arrangement has been launched. This brings a fair transition for employers and employees who are still at in employment relationship before the effective date.
Refer more : Know the Difference Between Retirement Schemes in Hong Kong -MPF and ORSO.
Grandfathering Arrangement: How it will function?
Within the formation of new rule (MPF Updates), it divides severance (SP) and long service payment (LSP) into 2 segments namely:
- Before Transition Date of 1st May 2025
- After Transition Date of 1st May 2025
The Employment Period Before Transition Date:
- Employers might offset still (SP/LSP) using both mandatory and voluntary contributions.
- SP/LSP is usually calculated based on the employee’s full month salary before the transition date (capped at HKD22,500) using the formula as follows:
= Monthly wage * 2/3 * Years of Service before 1 May 2025.
The Employment Period After Transition Date:
- Voluntary contributions can only offset among (SP/LSP).
- Calculations are based on the last month’s wages before bereavement (capped at HKD 22,500), using the formula as follows:
=Monthly wage*2/3*Years of Service after 1 May 2025.
Note: The Total combined cap for SP/LSP payments remains at HKD 390,000.
Examples Showing After the Abolition of Offsetting MPF Arrangement
- Let us see an example an employee has worked 4 years before the transition and 3 years after. Consider the monthly salary before transition as HKD 15,000 and after dismissal as HKD 18,000.
Therefore,
- Pre-transition SP/LSP: -HKD15,000*2/3*4= HKD 40,000
- Post-transition SP/LSP: -HKD18,000*2/3*3=HKD 36,000
i.e total SP/LSP:- HKD76,000
Now, if the employee exceeds the maximum payment of HKD 3,90,000 as stipulated in EO, the amount in excess of the cap will be deducted from the post-transition portion.
- Assume an employee employed with 20 years, service before the transition date, and continues to employ the employee for 10 years after transition date. Consider the before wages and HKD 22,500 and after wages as HKD 30,000 at the time of dismissal.
Calculation is as follows:
| Pre-transition portion of SP/LSP | $22,500 × 2/3 × 20 years = $300,000 |
| Post-transition portion of SP/LSP | $22,500* × 2/3 × 10 years = $150,000 |
| Total amount of SP/LSP | $300,000 (pre-transition portion) + $90,000# (post-transition portion) = $390,000 |
How are the accrued benefits derived from employers’ mandatory MPF contributions (ERMC) after the abolition that can no longer be used to offset an employee’s SP/LSP?
The abolition of the offsetting arrangement has no retrospective effect. If an employee is already in employment before the transition date, employers may continue to use ERMC to offset an employee’s SP/LSP in respect of the employment period before the transition date (pre-transition portion).
- Let us consider once again with the above example, the calculation and offsetting arrangement of the employee’s SP/LSP are as follows:
| a) | SP/LSP of the employee Pre-transition portion of SP/LSP Post-transition portion of SP/LSP (cannot be offset by ERMC) Total: | $40,000 (= $15,000 × 2/3 × 4 years) $36,000 (= $18,000 × 2/3 × 3 years) Total: $76,000 $76,000 |
| b) | ERMC in respect of the 7- year employment (assuming the employee has been given only one wage increase, which takes effect on the transition date and ERMC have no profit/ loss) | $68,400 (can only be used to offset the pre-transition portion of SP/LSP) |
| c) | ERMC used by the employer to offset SP/LSP | $40,000 |
| d) | ERMC retained in the employee’s MPF account | $28,400 |
| e) | Remaining SP/LSP payable by the employer after offsetting | $36,000 |
| f) | Total amount of benefits of the employee | $104,400 (= $76,000 SP/LSP + $28,400 ERMC retained in the employee’s MPF account) |
Accrued benefits derived from employers’ voluntary MPF contributions (ERVC)
ERVC can continue to be used to offset SP/LSP (irrespective of whether it is the pre- or post-transition portion of SP/LSP).
Gratuities based on length of service
Gratuities based on length of service can continue to be used to offset SP/LSP (irrespective of whether it is the pre- or post-transition portion of SP/LSP).
Learn more: Types Of MPF And How To Enrol Employees In An Organisation.
Key MPF Updates and Their Implications for Employers in 2025
The Impact of the eMPF Platform Rollout
This new system promises to bring Hong Kong’s retirement saving scheme into the digital age.
- Overview of the eMPF Platform
- Centralised and digital platform for MPF administration
- Acts as a one-stop shop for all MPF tasks
- Reduces paperwork and speeds up services
- Enables online account setup within minutes
- Simplifies payment processing for employers
- Easy and Quick Accessibility at anytime
2. Employer Responsibilities and Transition
- Plan ahead for a smooth move to eMPF platform
- Review and cross-check before the data transfer
- Register your company and employee details prior
- Update payroll software to integrate with the eMPF
- Train HR and finance teams on system usage
- Allocate early as possible to avoid last-minute hassle
3. Potential Challenges and Mitigation Strategies
- Data migration challenges may occur during transition
- Time Adaptation for staffs to new digital tools
- Testing migrations to detect and fix errors
- Early preparation ensures smoother implementation
Know more: Payroll Compliance Guide In 2025 And How To Automate Now.
Future Trends in Retirement Planning
Retirement planning is always changing. Keep an eye on broader trends beyond 2025. Discussions about increasing the retirement age might come up. Portable benefits or different investment models could also emerge. Staying aware of these big picture shifts helps your company plan for the long run. It ensures your employee support stays ahead of the curve.
Conclusion: Navigating the Future of MPF with Confidence
The MPF updates and reforms for 2025 mark a significant change for Hong Kong’s retirement system. For employers, embracing these changes early is vital. It means smooth administration. It shows you meet your duties. Most importantly, it supports your employees’ long-term financial security. By understanding the eMPF platform, contribution changes, new investment choices, and simpler compliance, your business can move forward with certainty. This proactive stance helps you build a strong, supportive workplace.
Key Takeaways for Employers:
- Prepare now for the eMPF platform by updating systems and training your staff.
- Ensure payroll accuracy with any new contribution caps and rates.
- Clearly tell your employees about new investment options and changes.
- Maintain excellent record-keeping and stay up-to-date on compliance rules.
- Think about how these changes fit into your broader employee benefits and financial health plans.
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