At a glance
- The government has announced that the abolition of the Mandatory Provident Fund (MPF) offsetting arrangement will come into effect on 1 May 2025.
- Upon its implementation, the longstanding arrangement that permits employers to utilise the accrued benefits from their mandatory MPF contributions to offset employees’ statutory severance or long service payment (SP/LSP) will be discontinued.
- However, accrued benefits derived from employers’ voluntary MPF contributions, as well as gratuities based on length of service, will generally still be eligible for use to offset SP/LSP.
- The offsetting arrangement will not have retrospective effect.
- The government will be assisting employers with the transition by implementing a 25-year government subsidy scheme.
The government has announced that the abolition of the MPF offsetting arrangement will come into effect on 1 May 2025. Upon its implementation, the longstanding arrangement that permits employers to utilise the accrued benefits from their mandatory MPF contributions to offset employees’ SP/LSP will be discontinued. However, accrued benefits derived from employers’ voluntary MPF contributions, as well as gratuities based on length of service, will generally still be eligible for use to offset SP/LSP.
The offsetting arrangement will not have retrospective effect. Consequently, employers will generally be able to continue using the accrued benefits derived from their MPF contributions (irrespective of whether these contributions were made before or after the effective date, and whether they are mandatory or voluntary) to offset employees’ SP/LSP for any employment that commenced before the effective date.
The government will be assisting employers with the transition by implementing a 25-year government subsidy scheme, which will permit employers to apply for a disbursement from the government to share their expenses resulting from a payment of SP/LSP following the effective date.
Although there were proposals to introduce a Designated Savings Account Scheme as another support measure (which would have required employers to save up for their future SP/LSP liabilities), the government confirmed in July 2023 that it would not pursue this measure due to cost.
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