Abolishment Of the MPF Offsetting Arrangement to Take Place
By 2025, the MPF offsetting arrangement will be formally abolished in Hong Kong. Employers will be provided with a HK$33.2bn subsidy.
The MPF is the Mandatory Provident Fund in Hong Kong. It is an offsetting mechanism that has finally run its course. The Employment and Retirement Schemes Legislation (Offsetting Arrangement) (Amendment) Bill 2022 was passed on 9 June 2022. It was the Hong Kong Legislative Council (LegCo) that approved it.
The Key Points Of the Abolishment
Under the abolishment, no employer will be able to use a worker’s pension as a form of the severance payment. This includes any long service payment involved. This is a significant milestone because it protects employees’ retirement.
Under the new arrangement, employers can continue using their voluntary contributions and returns. The returns should be derived from gratuities. It should also be based on how long the employee has been in service. All these factors can then be used to offset long service leave and severance payments.
There will be no retrospective effect from the Bill. This means that if an employee begins work before the transition period of this Bill, the employer can still continue to use the accrued benefits (MPF contributions). This can be used to offset an employee’s long service leave and severance payments.
Who Does the Abolishment Affect?
The abolishment of the offsetting arrangement will impact several categories in Hong Kong. One of them is the Occupational Retirement Schemes Ordinance (Cap. 426). It will also impact employees outside Hong Kong who fall under the overseas occupational retirement schemes that get MPF exemption.
Subsidised School Provident Fund Rules (Cap. 279D) and Grant Schools Provident Fund Rules (Cap. 279C) will also be impacted.
What Remains Unchanged?
The Termination of Contracts of Employment will remain unchanged. Employment Protection under the Employment Ordinance will also remain unchanged.
Other Changes to Expect
The Inland Revenue Ordinance (Cap. 112) will also undergo amendments under this bill. The changes will clarify that employees should receive severance and long service payments per the Employment Ordinance. These payments will not be subject to salary tax.
Employers will be eligible for the 25-year subsidy scheme worth HK$33.2 billion. This is to help them adjust to the new changes and focus on supporting micro-enterprises and SMEs (Small and Medium Enterprises).
The Protection of Wages on Insolvency Ordinance (Cap. 380) will also have some consequential technical changes made. The changes will be in regards to the provisions on subrogation rights. The changes will also impact the calculations for ex-gratia payments for severance payments.
It will take time for the bill to come into effect. Ancillary arrangements will go ahead, including a funding program by the Hong Kong government. The Designated Savings Account Scheme will soon follow suit.