TNAG-0531-FCO40-626-Application-of-International-Labour-Convention-to-Hong-Kong-1975 — Page 92

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19. It has been argued in favour of provident funds that they are more easily understood than collectively financed pension schemes. However, the well- established tradition of community responsibility for the upkeep of those in need should promote acceptance of the principle of pooling of risks and funds, the advantages of which are easily illustrated. The contention that provident funds are an effective transitional stage prior to the introduciton of pensions has not been borne out in practice. Workers become accustomed to the personal ownership of a provident fund account, and are resistant to proposals for systems of periodical payments, although these are payable throughout the contingency. The pressing needs of workers for capital suns to meet various commitments outweight longer-term considerations. The pressure exerted on the authorities to release all or part cf individual accumulations in specified circumstances other than the occurrence of the contingencies has resulted in the liberalisation of the rules for withdrawal at the expense of the social protection available at a later date. As stated in the paper "Social Security in Asia", Singapore allows the withdrawal of the full amount to pay for approved housing accommodation, and in Malaysia a member may claim one-third at age 50.

In the Employees' Provident Fund in India, members may obtain advances fcr the financing of life insurance policies, the purchase of a house or land for house building, the purchase of shares in consumers' co-operatives or housing societies, during temporary closure of an establishment, for illness of the member or his family a daughter's marriage, children's post matriculation education, damage to movable or immovable property due to a calamity of an exceptional nature and for relief of the member's unemployment. In the 1971-72 year advances of tnis nature were equivalent to over 21 per cent of the amount paid out in normal claims. This widespread tendency to use the provident fund system for a variety of social purposes constitutes a serious weakness since it detracts considerably from the protection afforded on the occurrence of the contingencies.

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20. The comprehensive deficiencies of provident funds as a form of long-term income protection have led to calls for reform.1 The allocation of part of the contribution to the Employers' Provident Fund and Coal Mines Provident Fund in India, into the Family Pension Scheme is a significant step. In other countries suggestions have been made that a system of annuities should be introduced, but the fundamental change which is required is to the principle of sharing of risks and pooling of the financial resources. Obviously, a key consideration is the treatment of accrued benefit rights. One approach would be to freeze the provident fund balances, for payment on satisfaction of the prescribed conditions, and to direct all subsequent contributions to the pension scheme. A possible variation according to the contribution rates involved would be to maintain the provident fund at a lower level of financing in conjunction with the pension scheme. The most decisive approach, expediting the changeover and maximising the impact of the new scheme, would be to convert accrued benefit rights into credits for pension purposes. However, this could hardly be made compulsory, at least for the higner

a ge groups,

or for contingencies occurring in a transitional period. It is possible to envisage that conversion of existing rights could be made optional for certain specified groups, but compulsory for others, so that the benefits of the pensions system could be experienced at the earliest feasible date.

al insurance schemes

Social

21. The effectiveness of social insurance systems for income protection was recognised by the Income Security Recommendation (No. 67), adopted by the 26th Session of the International Labour Conference in 1944, which declares that "income security should be organised as far as possible on the basis of compulsory social insurance, whereby insured persons fulfilling prescribed qualifying conditions are entitled, in consideration of the contributions they have paid to an insurance institution, to benefits payable at rates, and in contingencies, defined by law". The examination in preceding paragraphs of the effectiveness and shortcomings of various types of schemes has led to discussion of social insurance systems as an alternative method of providing social protection. The superiority of social insurance principles in the case of employment injury schemes has been amply demonstrated, and may be clearly observed where they are in force concurrently with employer liability legislation for the same contingency. The defects of employer liability schemes in respect of sickness and maternity are removed by collective financing arrangements, which also allow significant enhancement of the benefits.

1 See, for example, the Report of the National Commission on Labour, Government of India, Ministry of Labour, Employment and Rehabilitation, 1969.

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