Terminal Illness, Redundancy and MPF Offsetting
Mr Wong, aged 52, is a logistics supervisor earning HK$24,000 a month. He is diagnosed with terminal cancer and his doctor certifies that the illness is likely to result in death within 12 months. His employer terminates his employment by redundancy and calculates a severance payment of HK$180,000. Mr Wong's MPF account with Trustee X holds HK$800,000: HK$200,000 employee mandatory contributions, HK$500,000 employer mandatory contributions and HK$100,000 voluntary contributions. He also has HK$3,000 in a second MPF scheme from an old part-time job. Mr Wong wants to withdraw all MPF immediately to pay medical bills. The employer says it will use the HK$500,000 employer mandatory contributions to offset the severance payment and will pay only the difference. Mr Wong asks an intermediary whether he can withdraw everything and whether the employer can do this.
1. Is Mr Wong eligible for early withdrawal on terminal illness? What must he provide, and does the HK$3,000 account change the answer?
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Yes. Terminal illness is a statutory early-withdrawal ground. The test is whether the member is certified by a registered medical practitioner as suffering from an illness likely to result in death within 12 months. Mr Wong's doctor has certified exactly that. He does not need to be aged 65, permanently depart Hong Kong or be totally incapacitated.
He should apply to each trustee with the required terminal-illness medical certificate and identity and account documents. The trustee may verify the certificate and may have its own operational requirements, but it should not demand an unnecessary permanent-departure declaration. The HK$3,000 account does not prevent withdrawal: the small-balance rule is not the basis here, and terminal illness applies across schemes. He can apply to both trustees. The HK$3,000 is not a reason to refuse the main account, and the main account is not a reason to refuse the HK$3,000 account.
The intermediary should be careful not to promise same-day payment. Trustees need time to process, and the employer's offset dispute may affect the amount that can be released from the employer mandatory contributions.
2. Can the employer use the HK$500,000 employer mandatory contributions to offset the HK$180,000 severance payment? Explain which components are available and the limit on offsetting.
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The employer may use accrued benefits attributable to its mandatory contributions to offset a statutory severance payment, but only to the extent of the severance payment. The employer's HK$500,000 employer mandatory contributions are available for offset in principle; however, the severance payment is only HK$180,000. The employer cannot use the whole HK$500,000 and pay nothing. At most HK$180,000 can be offset, leaving HK$320,000 of employer mandatory contributions in the account, subject to the trustee's processing and any statutory changes affecting offsetting.
The employee's HK$200,000 mandatory contributions are not available to the employer for offset. The HK$100,000 voluntary contributions are also not employer mandatory contributions; their treatment depends on the scheme rules and whether they are ordinary voluntary contributions or TVC, but they should not be treated as a free offset pool. The employer must still pay any balance of severance after a valid offset and must comply with the Employment Ordinance.
The terminal-illness withdrawal and the offset are separate issues. The member can apply to withdraw his vested benefits on terminal-illness grounds, but the trustee may need to reserve or account for the employer's offset claim. The intermediary should not advise him to withdraw first in order to defeat a lawful offset.
3. What practical steps should the intermediary take for Mr Wong, and what should be explained about the voluntary contributions?
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The intermediary should first confirm the medical certificate, the employment termination date and the severance calculation. Then obtain a written breakdown from Trustee X separating employee mandatory, employer mandatory and voluntary contributions, and ask how the trustee will handle the offset claim. Mr Wong should be told that the first step is to submit the terminal-illness withdrawal application, but that the employer's offset may reduce the amount paid from the employer mandatory portion.
For the voluntary contributions, the intermediary should check the scheme rules. If they are ordinary voluntary contributions, withdrawal may be permitted under the scheme's terms; if they are TVC, terminal illness is an early-withdrawal ground, so they can also be released. The intermediary should not assume that all voluntary money is automatically payable in the same way. The client should also be told to keep copies of the medical certificate, severance calculation and trustee correspondence. If the employer refuses to pay the balance of severance, he should seek independent employment-law advice; the MPF intermediary should not calculate the legal entitlement as if it were a fund withdrawal.