XN000022-1995-01-25 — Page 29

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Under the arrangements proposed the Financial Secretary would administer the Fund as he does other funds established under the Public Finance Ordinance. The Fund would remain part of the Government's fiscal reserves and would be placed in the Exchange Fund managed by the Hong Kong Monetary Authority. Interest and dividends earned would accrue to the Fund.

Subject to this Council's approval of this resolution, we shall seek the approval of the Finance Committee to transfer $7 billion from General Revenue to the Fund within the current financial year. This transfer would not lead to any increase in public expenditure insofar as it would be a transfer of funds from one account to another.

It is proposed that the balance of the Fund in any given year would be maintained at a minimum of one year's estimated pension expenditure. It may therefore be necessary to top up the Fund from time to time in the future. We estimate that the expenditure on Civil Service pensions in 1994-95 will be $5.7 billion, and that annual pension expenditure for the next ten years will remain at around 5% of Government's annual operating expenditure. On the basis of these estimates, topping-

of the Fund would not be required for at least the next two years.

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The Civil Service Central Staff Consultative Councils support the proposal to establish the Fund as soon as possible, but have asked that the initial transfer to the Fund be in the order of $15 billion, failing which it should be increased to that level by June 1997. We have considered this request carefully but have concluded that we could not justify such a large sum to the Finance Committee under present circumstances. In particular, the existing statutory pension provisions, the guarantees and reassurances in the Basic Law and the Joint Declaration and the sound financial position of the Government, mean that it is most unlikely that the Fund would ever be used. Moreover, $7 billion is already a very considerable amount and should provide a clear demonstration to the Civil Service of the Government's commitment to meeting its obligation to pay pensions.

In short, the Administration considers that a Pension Reserve Fund covering a minimum of one year's pension expenditure is appropriate. We have balanced the claims of civil servants against the interests of the community as a whole and be mindful of what the public at large and this Council would accept. We believe that the size and scope of the Fund proposed meets the objective of providing the Civil Service with an important psychological reassurance on the future security of pensions. Whilst we can see no justification for any increase in the proposed scope and size of the Fund, this would not preclude a future administration from so proposing if they feel that circumstances warranted it.