TNAG-0916-FCO40-1127-Policy-on-salaries-and-pensions-for-civil-servants-in-Hong-K-1979 — Page 89

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Government Actuary's Department 22 Kingsway London WC2B 6LE

Telephone 01-242 6828 ext 217

Зів

Enter PA

RTP Anderson Esq

Overseas Development Administration

Eland House

Stag Place

LONDON SW1E 5DH

Your reference DP 201/77/01

Our reference 5749/1

Date

6 September 1979

HKK

2430/1

12

B

Dear Mr Anderson

HONG KONG RETIREMENT BENEFITS

I am sorry not to have replied earlier to your letter of 26 July. You have not sent the letter in your file SA 207/77/07 but in view of the lapse of time I think we ought to reply.

Reinstatement of the commuted pension after 121 years

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This proposal is based on a complete misconception of the present arrangements and should be rejected. It was introduced in Malaysia, and apparently in Singapore, without taking actuarial advice, and if it had been referred to US we would have advised strongly against it. The reason is that the factor of 12 times peusion was intended to represent fully the average capital value of the pension surrendered, and it allowed for the fact that some persons die soon after age 55 and that others live much longer. If the pension were to be restored to those who live to age 671, the factor of 12 would be too high. In effect the pensioner is taking a gamble when he commutes, and it would be no more correct to restore his pension if he lives a long time, when his gamble has failed, than to demand some repayment from the estate of a pensioner who died young because his commutation lump sum exceeded his pension payments.

3 The factor of 12 is less than the expectation of life at age 55, because it allows for the fact that the pensioner can earn interest on the lump sum. However,

as explained above it would be wrong to restore the pension at any age unless the commutation factor were reduced to allow for this.

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The circular from MoD concerns commutation of pension payments up to age 55 only, and the commutation factors reflect the value of a pension to this age only. For example, from Appendix 1, the factor

man of 50 is only 10026, ie under 4.

for a

Maximum pension and level of commutation

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The 2/3 limit is derived from the provisions for UK civil servants and is also the limit allowed by the UK Inland Revenue, but there is no single limit which can be considered correct. An increase to 75% would probably add considerably to pension costs in the long run, because I would imagine that an appreciable number of officers in Hong Kong serve for more than 400 months, and more would do so if the pension age were raised to 60 (in present conditions 55 is too low for civil servants in general, although the police are a special case).