(36
Enter e. P.A.
ROTER 17/9.
aving
of
From the Minister for Overseas Development
HKK 430
RECEIVEO
TO OFFICER ADMINISTERING THE GOVERNMENT OF HONG KONG
Dat........
14 SEP 1979,
No. PD 201/77/01
INTEX
Reference your saving No 163 of 4 July 1979.
feren
RETIREMENT BENEFITS
2.
Reinstating the commuted portion of a retired officer's pension after 121 year
This proposal is based on a complete misconception of the present arrangements and should be rejected say the Government Actuary's Department. It was introduced in Malaysia, and apparently in Singapore, without taking actuarial advice and if it had been referred to the GAD they would have advised strongly against it for the following reason.
The factor of 12 times pension was intended to represent fully the average capital value of the pension surrendered and it allowed for the fact that some persons die soon after age 55 and that others live much longer. If the pension were to be restored to those who live to age 67 the factor of 12 would be too high. In effect the pensioner is taking a ganble when he commutes, and it would be no more correct to restore his pension is he lives a long time, when his gamble failed, than to demand some repayment from the estate of a pensioner who died young because his commutation lump sum exceeded his pension payments.
2. The factor of 12 is less than the expectation of life at age 55 because it allows for the fact that the pensioner can earn interest on the lump sum. However as explained above it would be wrong to restore the pension at any age unless the commutation factor were reduced to allow for this provision in advance.
3.
The circular from MOD concerns commutation of pension payments up to age 55 only, and the commutation factors reflect the value of a pension to this age only. For example, from Appendix 1, the factor for a man of 50 is only 100 26, ie under 4.
ம்.
Maximum pension and level of commutation.
4. The two-thirds limit is derived from the provisions for UK civil servants and is also the limit allowed by the UK Inland Revenue, but there is no single limit which can be considered correct. An increase to 75% would probably add considerably to pensions costs in the long run, because it is possible that an appreciable number of officers in Hong Kong serve for more than 400 months, and more would no doubt do so if the pension age were raised to 60 (in present conditions 55 is too low for civil servants in general, although the police are a special case).
5.
GAD advice is to oppose increasing the fraction of the pension which can be commuted. The object of a pension scheme is to provide an annual income on which the pensioner can live all his life. A lump sum can be wasted, or if saved may not last long enough for a pensioner who lives for a long time.
CARRINGTON