CO129-483 - Others & Individuals - 1923 — Page 551

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In the despatch No. 132 to the Government of Hong Kong ( 23rd. April 1920) it is stated (paragraph 4) that when these Schemes were stareed, the current rate of interest as there defined ranged from 3 to 4%, and "the difference between such rates and 6% was intended to be a Government contribution towards the Widows and Orphans Pensions", But at present (i.e. in 1920) these current rates had so largely increased that the difference (as a contribution from Government) had virtually ceased; and it was accordingly considered that there now consider that there now existed "I

a good case for revising the pension tables

by substituting 8% compound interest for 6%".

Thus it is evident that the principle underlying the aecision of the Colonial Office consisted in the divergence between the market rate of interest and the guaranteed rate,

Hence it appears to me that the application of the 8% to pensions (whether" 6urrent" or "Prospective!) from their origin is in direct opposition to the prin- ciple of action, since it is an adoption of 8% when the current rates varied from 3% to 4%.

The practical question then arises: from what date should the 8% Tomitting the element of mortalityfor the moment) be assumed justly to operate? Let ús take two periods "Period I" and "Period II":

In "Period 1" it is clear that, while a difference existed between the market-rates and 6%, Government felt that a substantial benefit was conferred upon members by accumulating "the mean monthly balances* at 6%. With this period, then, Government now possesses no concern the members were receiving at least 2% in excess of the rate at which their savings could be personally invested.

Then, in Period II, the market-rate had practically reached the level of the guaranteed 6%, and Government immediately and generously proposed to substitute 8%.

Evidently, then, the increase of 2% can only appropriately and justly be assumed to come into operation from Period II, so that from this epoch the accumulated mean monthly balances (accumulated, that is to say, at 6% to that date) will thenceforth (with all future mean monthly balances) be accumulated at 8%. (I should also add, -referring to the assimilation of the market-rate to 6% mentioned by me just now/- that when, on the advance in the market- rate, the securities /in which contributors' savings had been invested/ fell in value, the burden had really descended upon the Government under their guarantee).

The recognition of the facts outlined in the above Periods I & II, have, manifestly, guided the Governments of Ceylon and Mauritius in their decision to adopt the lat. of January 1920 and 1921 respectively as the date from which the 8% is to operate, and, in my judgment, it is the only sound and tenable one.

The Governments of Trinidad and Straits Settlements, I note, have not followed the sagacious course adopted in

Ceylon and Mauritius, and have thus, by allowing 8%