End of MPF offsetting arrangement
On 9th June 2022, the Legislative Council voted to abolish the MPF offsetting arrangement, which has been in effect since the beginning of the MPF scheme in December 2000 and allows the use of the accrued benefits of employer’s MPF contributions to offset severance and long service payments entitled by the working population due to layoffs or business closures.
The Government plans to implement the change in 2025 along with the rollout of the eMPF platform. Under the new rule, the monthly rates and limit used to calculate severance and long service payments will remain the same at 2/3 of monthly salaries and $390,000 respectively. After the effective date when the MPF offsetting arrangement is abolished (transition date), employers’ portion of accrued MPF mandatory contributions can no longer be used to offset severance and long service payments for the employment period starting from that day.
Impacts to employers
After the transition date, employers will have to contribute an extra 1% of employee’s salaries to a new designated savings account for future severance and long service payments obligations.
The change will definitely increase operating costs of the employers, and therefore the government agrees to provide a subsidy scheme for up to 25 years to help ease their burdens.
Impacts to employees
As employers can no longer claw back their accrued MPF mandatory contributions to cover severance and long-service payments for the employment period after the transition date, it will help strengthen the retirement reserve of the working population and enhance the effectiveness for retirement protection.
On the other hand, some speculate employers will begin to hire more short-term contract workers as a result.
Summary
There have been extensive discussions among different parties of the impacts due to the abolishment of MPF offsetting arrangement and it will undoubtedly enhance retirement protection for the working population. If the government can provide further subsidies such as tax reduction to help ease employers’ transition, it will help minimize the impact to the labour-employer relationship.
As the size of total MPF assets will increase further, we look forward to having more fund choices and retirement withdrawal strategies from various MPF trustees as well as continuous reduction on fees to enhance fund returns and ultimately improve the MPF system.
Last update: 13th June 2022