TNAG-0531-FCO40-626-Application-of-International-Labour-Convention-to-Hong-Kong-1975 — Page 211

189.

Several participants

raised

the

question

of setting a "proper normal retirement age" taking into account decreased productivity at advanced ages, the need for "younger employees with fresh ideas", etc. It was noted that an actuary could advise on the financial impact which various retirement ages would have on a particular social security system, but that there were much broader economic considerations in

setting mandatory retirement ages, that this was more properly a national policy decision, and that perhaps, some day, econometric analyses could be useful in making such decisions.

to

A distinction was made between two general methods of providing social security benefits: the provident fund approach and the social insurance approach, use arbitrary terminology. It was noted that under the social insurance approach, it was usual to define the type and level of benefits to be provided in the event of various contingencies, and then to determine the rate of contribution necessary to provide such benefits (possibly redefining the benefits if the costs were inappropriate). On the other hand, under the provident fund approach, it was usual to determine first the rate of contribution

be collected and then pay benefits of a ty pe and level which could be provided by the contributions accumulated with respect to each participant. Thus the type and level of benefits were more explicitly designed under a social insurance approach, than under a provident fund approach.

to

It was pointed out that reserve funds were automatically accumulated at a substantial level under a provident fund, but that the level of reserve funds under a social insurance approach could be regulated, depending upon various financial decisions taken, So as to be greater or lesser than under the provident fund approach.

A number of other characteristics of the provident fund and the social insurance approaches to providing social security benefits were discussed briefly.

Some participants expressed dissatisfaction with their provident funds which credited interest at a lower rate than that prevailing on the "outside" (savings accounts, favourable real estate purchases, etc.). It was noted that a provident fund cannot give credit for interest at a rate higher than it earns on its underlying assets at least for very long: and that provident funds have traditionally been invested rather conservatively, thus earning low rates of return. The only way

earn higher rates of return and give longer interest credits to participants would be to invest the provident fund more aggressively. (It may be noted that sone provident funds pay administrative expenses from investment earnings, and by altering

interest credits could be increased

correspondingly.)

Since an

to

on-going

this practice

provident fund had no need for substantial liquidity, longer-term, higher-yielding investments could be utilised than was normally the Of course, other considerations, such as safety of capital, had to be borne

case. in mind.

With regard to the question of maintaining reliable statistics relating to social security, several participants discussed some of the problems which exist. ILO activities in this area were reviewed, including the use of fellowships to enable local statisticians to increase their knowledge, the provision of technical assistance through statistical experts, and research in this field as evidenced by such publications as the ILO'S "Scheme of statistical tables for the practical application of a minimum programme of social security statistics".

One participant stated that it vas his view that actuarial studies vere indispensable before the introduction of a social security system so that the cost implications would be known but that reliable statistics were often unavailable at such a time; therefore, he wondered whether a country should wait until its statistics were reliable before engaging the services of an actuary. The questioner was advised that even though complete statistical data were not available, it was still highly advisable to have actuarial studies prepared in the early planning stages of a social security system, using the best data available.

a nd

One participant suggested that, in his country, because the increase in the number of insured persons was so rapid and would continue for such a long period, because the social security system was becoming a system covering all citizens, because the future costs would be borne by public revenue, there was no need to worry about actuarial estimates of the future cost. It was thereupon pointed out with great emphasis that it was essential to know the financial implications in both

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