How to divide pension/Mandatory Provident Funds (“MPF”) Retirement Benefits in Ancillary Relief for Divorce in Hong Kong?

Nearly 25 years have passed since Hong Kong launched the Mandatory Provident Fund (“MPF”) in December 2000. As of February 2025, total assets under the MPF system in Hong Kong reached approximately HK$1.352 trillion, marking a record high since its inception and also a significant growth from the HK$1.18 trillion reported at the end of March 2024. These are in addition to the assets managed under the difference the Occupational Retirement Schemes Ordinance (“ORSO”) schemes and pension funds, details of which are not readily available.

Nevertheless, pensions, MPFs, ORSO (collectively the “retirement benefits”) can easily become a person’s significant asset upon their retirement. Even if such retirement benefits were accumulated throughout the marriage, it does not necessarily mean that the entire retirement benefit is subject to division in divorce proceedings.

There has been a trend in litigation where parties seek to exclude a portion of the retirement benefits from division, on the basis of the lack of liquidity, or because it was accumulated prior to the marriage or after parties separated.

This article explores whether the retirement benefits be treated as a marital asset? And if so, what portion of the retirement benefits balance should be included in the division of assets?

Pension as Matrimonial Assets and Types of Court Orders
In divorce proceedings, the Court may make a series of financial orders, including:
1. Periodical payments;
2. Secured periodical payments;
3. Lump sums;
4. Transfer and settlement of property;
5. Variation of settlements.

When determining the financial outcome, section 7 of the Matrimonial Proceedings and Property Ordinance (Cap. 192) (“MPPO”) is the legal basis, which sets out the matters that the Court shall have regard in deciding what orders to make. In particular, Section 7(g) of the MPPO specifically states that when determining the financial outcome in divorce proceedings, the Court should have regard to the retirement benefit that the spouse may lose as a result of the divorce. Further, the Court is also guided by the four guidelines and five steps exercise established in LKW v DD (2010) 13 HKCFAR 537.

Peculiar Nature of Retirement Benefits

The peculiar nature of retirement benefits are that: (1) they are accumulated throughout a person’s entire career span, often both before the parties’ marriage and after separation; and (2) different from other assets, retirement benefits are often illiquid and not accessible until much later. Further, retirement benefits are often paid out in various ways, as a lump sum, as an income stream or as a mixture of both.

The peculiar nature of retirement benefits is firmly recognised by the court in SSLT v SMFC [2019] HKFC 250. In that case, the parties were only able to access their pension accounts upon retirement, which was more than 20 years away. The Hong Kong Family Court recognised the illiquid nature of MPF/ pension benefits, which carries its own specific limitations and risks. On such basis, the Court ruled that it is necessary to differentiate between assets that can be readily converted into cash and those that are not easily transferable or realizable, such as retirement benefits.

Valuation of Retirement Benefits

The Court will first have to value the matrimonial asset before it can proceed to distribute the matrimonial assets. When valuing retirement benefits, Hong Kong Courts usually apply a cash equivalent value (“CEV”), estimated at the time of the trial.

Court’s Treatment of Retirement Benefits

In matrimonial cases, the Hong Kong Courts determine matrimonial finance disputes in a fair and reasonable manner. However, the Court’s determination of each case will inevitably turn on its own facts.

As part of the Matrimonial Asset: If the marriage is short, the Court maybe more reluctant to treat these retirement benefits as part of the matrimonial asset, as the parties’ prior marital / post separation accumulation may significantly outweigh those accumulated retirement benefits during the marriage. Conversely, in a long marriage, the Court is more likely to treat these benefits as part of the shared resources of the marriage. As the parties’ financials become more intertwined throughout their marriage, it becomes more challenging to identify the parties’ respective contribution towards the pension1 . In cases of long marriages (over 20 years), the Court refused to draw any distinction between pre- or post-separation pension value when determining the matrimonial assets(2).

Extent of Benefit to be Shared: Even if the Court determines that the retirement benefit should form a part of the matrimonial asset, this does not mean that the Court will include the entire retirement benefits as matrimonial asset.

In a recent Court of Appeal decision, it apportioned 80% of the Husband’s pension as part of the matrimonial asset. In some other cases, the Court has been more restrictive and only included 10% – 60% of the pension value (determined at the time of the trial), having regard to the illiquid nature of the retirement benefit and the time before parties are able to access such benefits.

Lump Sum Payment / Monthly Pension: In exercising the Court’s wide discretion, the Court may also examine the motive behind a party’s decision not to commutate part of the pension benefits with a view to achieving overall fairness between the parties(3).

After the Court has determined whether the retirement benefit should form part of the matrimonial asset, and if so, the extent to which is included, the Court will make a determination of the final outcome, having regard to all other assets and factors of the case.

In previous decided cases, the Court has provided the following mechanisms in dealing with retirement benefits:
1. A lump sum payment Order, representing the receiving party’s share in the lump sum pension received(4)
2. A periodical payment order, directing a party to pay to the other party a portion of the monthly pension received(5)
3. As opposed to sharing the actual pension, include the value of the pension as part of the party’s matrimonial assets for the purposes of financial determination(6)(7).

As illustrated above, the Hong Kong Courts’ current approach in relation to pension benefits is based on a broad, discretionary framework focused on principles of fairness and equality. There is no unified and systematic approach. Therefore, it may be worthwhile to explore how other common law jurisdictions are addressing similar challenges.

United Kingdom: Options for Flexibility and Tailored Solutions
In the United Kingdom (“UK”), the Matrimonial Causes Act 1973 provides mechanisms for dividing / sharing a person’s pension in divorce proceedings. These include pension sharing, pension offsetting, and pension earmarking:
▪ Pension sharing: this is an arrangement where a person’s existing pension is divided and transferred over to the spouse. The party receiving the pension can remain a member of the existing pension scheme; or alternatively, to transfer the pension to a new pension provider.

▪ Pension earmarking: While this is similar to pension sharing, the legal ownership is not transferred to the other party. However, when an ex-spouse is entitled to receive pension payments, part or even all of such payments maybe paid directly to the other spouse.

▪ Pension offsetting: In this arrangement, a party who decides to retain his/her ownership over the pension will have to transfer to the other spouse properties and/or assets to make up for the value the spouse would have received.

The UK Court also takes a more robust approach in dealing with pensions. In W v H (divorce financial remedies) [2020] EWFC B10, the Court acknowledges that there is no “one size fits all” approach to determining pensions. In that case, both parties were nearing retirement, defined benefit schemes are involved and that there was insufficient assets to meet the parties’ respective needs. As a result, the Court included both pre-marital and post-marital pension rights and decided that equal sharing of pension income is more appropriate than equal sharing of pension capital. Further, the Court also recognised that the lack of liquidity in pensions and pension’s post-retirement income producing qualities. The Court also acknowledged that mixing pension with mixing different categories of assets may ‘run the risk of unfairness in that valuation issues become very difficult’. Therefore, the Court said that pensions should be dealt with separately and discretely from other capital assets.

Australia: Superannuation Splitting and Balancing Interests

In Australia, the law recognises Superannuation as marital property to be divided upon the dissolution of marriage. Similar to that in the UK, the Australian law provides three options when dealing with Superannuation:

▪ Superannuation splitting: This divides the superannuation so that one party transfers his/her superannuation to the other. This creates a new interest for the non-member spouse within the same fund. The non-member’s interest can then be rolled over into a chosen compliant fund. However, these funds are not accessible until certain release conditions are met.

▪ Flagging agreement: This defers the decision to split the superannuation to a later date. This may be attractive to parties who would prefer some degree of flexibility over when to split the superannuation depending on timing and the amount of funds in the superannuation.

▪ Leave it untouched: Lastly, similar to ‘pension offsetting’ in the UK, one party may choose to retain the superannuation under his/her sole name, but instead pays off the divorcing spouse with other matrimonial assets.

Way forward for Hong Kong

When compared to the UK and Australia, Hong Kong lacks of specific statutory provisions to deal with pensions in matrimonial proceedings. Clearer guidance and principles when dealing with pensions as part of the financial relief in divorce proceedings will be very much welcomed. This could achieve consistency, predictability and with the view towards more equitable outcomes for all parties.

In the meantime, key take-aways are as follows:-

▪ There is no unified approach to what extent a party’s retirement benefits are to be treated as a matrimonial asset for purposes of division. Further, while the Court may try to navigate ‘pension sharing’ within the current legal framework, such make-shift measures do not produce the same effect as those in the UK or in Australia.

▪ Retirement benefits accumulated throughout the marriage are generally considered part of the matrimonial asset for purposes of division. But factors such as the duration of the marriage, pre / post separation accruals will impact on the extent of such benefits to be considered as part of the matrimonial asset.

▪ The Court acknowledges and has dealt with illiquidity of retirement benefits by applying a discount towards the pension value. However, such discounts vary significantly between cases.

▪ Regardless of the Court’s determination of such retirement benefits, parties must give full and frank disclose in matrimonial proceedings. This means they must fully disclose existence, the whereabouts and the extent of such benefits. This particularly applicable to Hong Kong, where parties may have worked overseas and have therefore accumulated retirement benefits in other jurisdictions.

With that in mind, the authors propose that the following measures be considered:

▪ Codifying existing principles: Enacting legislation that formalizes key principles established through case law, such as recognizing the total value of the pension as a matrimonial asset and placing emphasis on post-retirement income potential. Exploring the feasibility of orders akin to pension sharing orders in the UK, which allow for the transfer of an ex-spouse’s pension value into a new pension account, would provide couples facing divorce with greater clarity and predictability.

▪ Developing specific provisions for different types of pensions: Tailoring provisions to address the distinctive characteristics of various pension schemes, including defined benefits and defined contribution plans. This approach would ensure a more equitable division of assets and account for the specific nature of each pension scheme.

▪ Providing guidance on illiquidity discounts: Establishing clearer guidelines on applying illiquidity discounts to pensions could promote consistency and transparency in asset valuation. This guidance would help determine the appropriate adjustments to account for the restricted liquidity of pension funds.

By implementing such reforms, Hong Kong can strive towards a more unified and equitable approach to pension division in divorce cases. This will not only enhance the fairness and predictability of the legal system but also contribute to greater certainty and stability for individuals navigating the complex and often emotionally charged process of divorce.

Adrian Au and Becky So (Pantheon Chambers)

For specific advice on your situation, please contact:

Adrian Au
Partner | E-mail

Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

1. 陳對鍾 CACV 461/2022, [2023] HKCA 560
2. LCSA v AP [2019] HKFC 105
3. LOTM v CSM [2022] HKFC 64

4. 陳對鍾 CACV 461/2022, [2023] HKCA 560 and 梁對王 FCMC 14467A/2018, FCMC 14467/2018, ; [2022]
HKFC 23 (unreported 11 February 2022)
5. 陳對鍾 CACV 461/2022, [2023] HKCA 560
6. LCSA v AP FCMC 2295/2014 [2019] HKFC 105 (unreported, 18 April 2019)
7. SSLT v SMFC FCMC 11056/2017, [2019] HKFC 250 (unreported, 20 September 2019)