CONFIDENTIAL
17
59.
Some of these
these schemes operate
on the basis
basis of contributions from both employer and employee, others on the basis of employers' contributions only. Typical levels of contribution amount to 15% of the employees' salary, split either on the basis of a 7 1/2% contribution from both sides or a 5% contribution from the employee and a 10% contribution from the employer. In such cases, the benefits are directly related to the value of contributions, but there is a growing trend towards 'final salary' schemes, where the benefit is related to the value of the employee's salary upon retirement and the length of service with the employer, similar to the
the long service payment scheme under the Employment Ordinance. Some 628
'final-salary' schemes have been approved.
60.
Not all of these schemes, however, offer the same degree of security as a Central Provident Fund with regard to the management of assets, and there have been cases where the assets of an employee-contributory provident fund have been lost on insolvency of the employer because of the absence of any requirement for separate funding and management. It is proposed to remedy this defect by amending the Employment Ordinance to prohibit deduction of wages in respect of contributory schemes unless the fund has been approved by the Commissioner of Inland Revenue under the Retirement Scheme Rules, which require independent management of assets.
An alternative strategy
61.
w
An alternative strategy to the introduction of a Central Provident Fund might comprise a number of elements. The first, given that Hong Kong unlike many of the other countries in which CPF schemes have been introduced is a sophisticated financial centre, would be to emphasize the increasing availability of private saving and investment schemes of interest to the average employee. These allow the individual
individual to decide his own preferences as between saving and consumption and as between various k inds of scheme offering varying combinations of risk and reward.
62.
A second element would be to continue the present policy of gradual improvement as necessary to the existing and already quite substantial framework of social provision described above.
-
63.
A third element would be
to encourage the trend towards introduction by employers of provident fund and retirement schemes of their own. The long service payment legislation, by requiring provision to be made for the long-serving employee and by allowing the offsetting against this obligation of any
obligation of any payment under
payment under a provident
CONFIDENTIAL