What Is the MPF Offsetting Mechanism? When Employer Contributions Become Severance

In late 2011, as the European debt crisis spread and HSBC announced 3,000 Hong Kong layoffs, many employees started asking: if my company collapses or I’m made redundant, what happens to my MPF account? The answer surprised many at the time: employers could use the employer-contribution portion of your account to “offset” severance or long service payments. That is the MPF offsetting mechanism.

What is the MPF offsetting mechanism?

The MPF offsetting mechanism works like this: the employer first advances the full severance or long service payment to the employee, then applies to the MPF trustee to withdraw the accrued benefits derived from the employer’s contributions to offset it; if those accrued benefits exceed the payment made, the remainder must stay in the employee’s account; if they fall short, the employer may withdraw that portion in full. Only the employer-contribution portion can be offset — the employee’s own contributions are untouched.

Offsetting only touches the employer’s portion

To understand the mechanism, first separate where the money in the account comes from:

The MPFA explained at the time that accrued benefits derived from an employer’s contributions for eligible employees could, as the law allowed, be used to offset severance or long service payments. The arrangement dated back to a political compromise at the system’s birth — employer groups had demanded it in exchange for supporting MPF.

What to watch for if you’re made redundant

If you’re dismissed (rather than the company collapsing), your accrued MPF benefits are unaffected — the employer can’t touch the account at will. But be careful in weak markets: if the employer applies to offset while funds sit at a low, it’s effectively “selling low”, with the employer-contribution portion crystallising losses. That’s why the MPFA kept reminding members to manage their accounts actively — don’t wait until redundancy strikes.

Another practical tip: at retirement, if you’re in no hurry to close the account, you can wait for markets to clear before selling funds or withdrawing benefits, rather than being forced to liquidate everything at once in a downturn.

What happened to offsetting later?

The offsetting mechanism was already controversial back then, criticised for eating into employees’ retirement protection. The debate ran for years until the government legislated to abolish MPF offsetting — but that’s a later story. This 2011 report captures the era when offsetting was still in full operation. For the basics of how MPF works, see mpf.hk’s MPF education hub.