Government proposes plan to scrap MPF offsetting mechanism
The Hong Kong government has proposed a plan to abolish the mechanism allowing employers to use the Mandatory Provident Fund (MPF) contributions to offset severance and long-service payments.
Key highlights of the proposal are as follows:
1. A cut-off date is set to allow employers to offset severance and long-service payments against the MPF contributions they paid for employees
2. The amount calculated for severance and long-service payments is reduced from two-thirds of the employee salary to one half
3. Under the new proposal, the government would have to subsidize HK$1 billion for the first year and the new measure is expected to undergo a transition period for as long as ten years, with the amount of the government subsidy decreasing by each year
A total amount of HK$28 billion was used to offset severance and long-service payments between Jul 2001 and Dec 2015. According to the data from Mandatory Provident Fund Scheme Authority, HK$3.35 billion of MPF contributions was offset for employees’ long-service and severance payments in 2015, which increased by 11.5% compared to 2014.