MPF offsetting abolished: the 2025 change and how LSP/severance is calculated

What was 'offsetting', and what was abolished?

'Offsetting' let employers use MPF accrued from their mandatory contributions to offset LSP or SP owed to an employee — eroding the employee's retirement savings. From 1 May 2025 (the transition date), employers can no longer use mandatory contributions to offset LSP/SP for service from the transition date. Note that abolition does not remove LSP or SP themselves — both are still calculated under the Employment Ordinance; what changed is only whether an employer may still use mandatory contributions to offset them. For how MPF accounts and contribution types work, start with the MPF basics.

Arrangements follow the MPFA and the Labour Department; the table above is conceptual, not a legal calculation for any individual case.

What's the benefit for employees?

• MPF accrued from mandatory contributions is no longer offset — retirement savings stay intact.
• For service from the transition date, LSP/SP is unaffected by offsetting.
• Over time this helps build a fuller retirement pot, giving you more room when planning the five pillars of retirement.
• A more stable MPF balance also makes it easier to review whether to consolidate your MPF accounts and reduce scattered management.

Individual cases depend on service length and the pre/post-transition split; this section is general education, not personalised advice.

How is LSP/severance 'segmented'?

After abolition, calculation uses a 'segmented' approach, splitting service into a 'pre-transition' and a 'post-transition' portion, each calculated separately. Employers may still use 'voluntary' contributions (not mandatory) to offset; the pre-transition portion has transitional arrangements. The government also runs a multi-year subsidy scheme to help employers adjust. Because the actual amount depends on wages, service length and the pre/post-transition split, it is worth checking item by item when you leave.

1. Confirm your leaving date against the transition dateFirst check whether your last day is on or after 1 May 2025 (the transition date), as this determines whether the post-abolition segmented arrangement applies.
2. Split service into pre- and post-transitionUsing the transition date as the dividing line, split total service into a 'pre-transition' and a 'post-transition' segment, each calculated separately.
3. Distinguish mandatory from voluntary contributionsService from the transition date can no longer be offset with mandatory contributions; if the employer offsets with voluntary contributions, ask for the source and amount to be itemised.
4. Cross-check with official guidance or toolsVerify the result against MPFA and Labour Department guidance or calculators, and contact the Labour Department if in doubt.

Actual calculation involves service length, wages and the pre/post-transition split — refer to the MPFA and Labour Department guidance or tools; this section is not legal or tax advice.

What does it mean for your retirement plan?

Abolition keeps your MPF pot fuller, but MPF is still only part of retirement income. Plan it alongside annuities, self-made passive income and healthcare cover, and see the whole retirement cash-flow picture. Start with MPF withdrawal and consolidation strategy, then review how public pillars such as government retirement income fit in. As a teaching example (not a guarantee): if a segment of savings is no longer offset, that amount stays in the account and can keep growing in line with your chosen funds — the actual outcome depends on markets and fund choice.

General education only, not personalised advice; details involving amounts, tax and statutory entitlements follow official announcements.