HONG KONG – The abolition of the mandatory provident fund (MPF) offsetting arrangement took effect in Hong Kong on Thursday.

This means employers can no longer use the accrued benefits of their mandatory MPF contributions to offset employees’ severance payments and long service payments in respect of their employment periods after May 1.

However, the accrued benefits derived from employers’ voluntary contributions and contractual gratuities based on employees’ length of service can continue to be used to offset severance payments and long service payments, the government said in an announcement.

The abolition of the offsetting arrangement has no retrospective effect. Current employees' severance payments and long service payments in respect of their employment periods before the transition date can still be offset after May 1.

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The abolition of the offsetting arrangement is also applicable to occupational retirement schemes under the Occupational Retirement Schemes Ordinance, the two school provident funds under the Grant Schools Provident Fund Rules and Subsidized Schools Provident Fund Rules, and overseas occupational retirement schemes joined by employees from outside Hong Kong which are exempted from the MPF System, the government said.

To tie in with the new arrangement, the Labour Department on Thursday launched a 25-year Subsidy Scheme for Abolition of MPF Offsetting Arrangement to share out employers’ severance payment and long service payment expenses.

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However, employers are required to pay severance payment and long service payment to employees in accordance with the Employment Ordinance before submitting subsidy applications.