The existing regime

• Currently, under the MPF scheme, an employer is required to make employer mandatory contributions equivalent to 5% of an employee's relevant income per month, capped at HKD 1,500 each month (employer's mandatory contributions). Some employers make MPF contributions in excess of the mandatory requirement of 5% of the relevant income for their employees (i.e., employer's voluntary contributions).
• There is an offsetting mechanism under the existing arrangements where employers can use the MPF benefits derived from the employers' (not the employee's) MPF contributions to reduce the employees' statutory SP or LSP entitlements.

The revised mechanism

• The ability for employers to use the benefits derived from the employer's mandatory contributions to offset the SP/LSP entitlement under the Employment Ordinance will be abolished from a date to be appointed ("Transition Date"). Different arrangements are in place depending on whether the termination of employment occurs before or after the Transition Date.
• Details of the revised mechanism and the transitional arrangements are set out below:

Other points to note

• There will be no changes to the eligibility for SP or LSP. The rate and maximum payment of SP or LSP will remain unchanged as well. In particular, the overall cap of the SP/LSP payment (pre-transition portion plus post-transition portion) remains at HKD 390,000.
• SP or LSP paid pursuant to the Employment Ordinance is not chargeable to salaries tax. 
• To facilitate the calculation of pre-transition portion of SP/LSP, employers must maintain wage and employment records for their employees covering the 12 months of the employee's employment (or a shorter period for an employee who has worked for less than 12 months) immediately preceding the Transition Date. 
• The abolition of the offsetting arrangement will also be applicable to certain other retirement schemes, such as MPF-exempted occupational retirement schemes under the Occupational Retirement Schemes Ordinance in relation to certain employer contributions made to those occupational retirement schemes.

Going forward

The government intends to introduce a 25-year subsidy scheme of HKD 33.2 billion with a view to helping employers, especially micro, small and medium-sized enterprises, adapt to the changes.

The government will mandate employers to set up Designated Savings Accounts, where employers have to make mandatory contributions for meeting their potential SP or LSP liabilities after the abolition of the offsetting arrangement.

Employers should be aware of the abolition of the offsetting arrangement and ensure compliance with the new regime. Employers are also encouraged to communicate proactively with their employees to avoid any misunderstanding.

Related content:

• Government press release: Employment and Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Ordinance 2022 gazetted today
• Legislative Council Brief