Hong Kong’s leader has announced that a labour bill to stop bosses from dipping into staff pensions to cover severance and long-service payments and ensure workers have better retirement protection will come into force in two years.

Chief Executive John Lee Ka-chiu on Friday revealed that the bill, which abolishes the so-called offsetting mechanism under the Mandatory Provident Fund (MPF), would come into force on Labour Day 2025, ending a decade-long wait for improvements in workers’ welfare.

“I hereby declare that I have made a decision that the scrapping of the ‘offsetting mechanism’ will take effect on May 1, 2025,” Lee said at a Labour Day reception event, which sparked a round of applause from the audience.

(From left) May Chan, commissioner for labour; Alice Lau, permanent secretary for labour and welfare; John Lee Ka-chiu, chief executive; Chris Sun, secretary for labour and welfare, and Ho Kai-ming, undersecretary for labour and welfare, at the Hong Kong Convention and Exhibition Centre.

“The bill passed last year is an important milestone in strengthening retirement protection for employees … The government will formulate and implement subsidy plans, which costs up to HK$33 billion [US$4.2 billion] for employers in the next 25 years to share their costs on severance and long-service payments and assist them to adapt to the changes.

“Looking forward, my team and I will communicate frankly with both employers and employees on labour issues, and let employees share the fruits of economic development.”

The Legislative Council passed the bill to abandon the offsetting mechanism last June and said it must be scrapped no later than the end of 2025.

Labour minister Chris Sun Yuk-han explained that the government chose May 2025 after considering the time needed for preparation.

“After calculating the time needed to request funding from the Legislative Council and implementing the information platform, we think May 2025 is a feasible deadline,” Sun said.

Employers will no longer be able to deduct severance or long service payments from their portion of MPF contributions under the new provisions.

Employees’ pension funds accrued after the transition date would be protected by the new law even if they were sacked or laid off by their employer. However, the offsetting mechanism could apply to pension funds contributed before May 2025.

The government will introduce a 25-year subsidy scheme totalling HK$33.2 billion to support employers with severance payouts to help with the transition.

Employers will only be liable to pay each employee HK$3,000 if the total amount owed to dismissed workers in a year does not exceed HK$500,000, with the government footing the rest of the bill in the first three years of the scheme.

Payment caps for employers will rise gradually over the next six years and subsidies will be reduced progressively in the following 22 years.

Labour constituency lawmaker Chau Siu-chung welcomed the government’s deadline, saying that he was glad to see the cancellation set in stone and decoupled from another pension policy of the Labour Department.

“Previously, the government said the new bill would be tied to the eMPF platform,” Chau said. “The platform has been delayed. Hence we have been worried that the implementation of the new MPF bill would also be delayed.”

Allen Shi Lop-tak, president of the Hong Kong Chinese Manufacturers’ Association, said employers were not been surprised by Friday’s announcement because they had expected the new arrangement to take effect. After all, the debate had gone on for decades.

“Since there’s a ceiling to employers’ contribution to severance payment [in the first few years], the impact isn’t very big on businesses,” Shi said.

Welcoming the government’s decision, Ayesha MacPherson, chairman of the Mandatory Provident Fund Authority, said the announcement was a big step toward improving the pension system.