CONFIDENTIAL
HONG KONG CIVIL SERVICE PENSIONS: ALTERNATIVE FUNDING
ARRANGEMENTS
Background
In common with many Governments, including HMG, Hong Kong
has not build up a fund from which to pay pensions to civil
servants. Instead pension funding requirements are met from
recurrent revenue. At present, this accounts for
approximately 3%-4% of HKG annual expenditure. It is not expected to rise above 6% in the next 10-15 years. But the
accumulated pension liabilities by 1997 were estimated in
1988 at some HK $120 bn.
Security of pension is probably the key concern for all Hong Kong civil servants. There is little confidence amongst
civil servants that the SAR government will honour pension entitlements fully. Civil servants worry about a range of
possible scenarios from complete default; failure to
increase pensions by inflation; penalties for drawing the pension outside Hong Kong; much increased tax on pensions;
"voluntary" contributions to Chinese projects/charities etc.
Hong Kong civil servants have therefore been urging the Hong
Kong Government to do more to give them certainty that their
pensions will indeed be paid when the time comes.
HKG have gone some way towards this. The new pension scheme, provides for deferred pensions (ie payable at normal retirement age) to be paid to anyone who serves at least 10
years. The deadline for joining this is now 31 December 1992. People retiring can commute up to 50% of their pension in a lump sum (this was previously 25%). HKG have secured Chinese agreement that they may introduce
legislation stipulating that Hong Kong pensions shall be
increased by the rate of inflation. While these measures
have been generally welcomed by civil servants, they still
JUDADG/1
JRB
CONFIDENTIAL