necessitate greater involvement of the Exchange Fund in order to restore and maintain monetary stability. If investment were restricted to the domestic market, there are insufficient first class Hong Kong dollar assets to absorb the volume of funds likely to be available.
The reaction of employers to any proposal to introduce a CPF is likely to
likely to be negative, particularly in view of prevailing sensitivity to cost increases. The reaction of employees is more difficult to assess and would depend very much upon rates of contribution, upon the division of the burden between employers and employees, upon individual financial circumstances and
preferences as between consumption and saving. Employee reactions are also likely to be influenced by political perceptions.
There is already a substantial framework of social provision and of private sector provident schemes in Hong Kong and this
weakens the case for a CPF.
An alternative strategy is available comprising the following elements:
(i)
(ii)
(iii)
emphasis upon the availability here of an increasing range of private savings and investment schemes of interest to the average employee;
as
continued gradual improvement necessary to the existing framework of social provision; and
action to promote the further development of private provident and retirement schemes.
7
An Annex to the paper considers the level of benefits resulting from varying combinations of period and rate of contribution. For example, a combined contribution
contribution rate of 10% would, after 20 years and assuming that the CPF achieves a real rate of return on investment of 2.5% per annum, produce a lump sum equivalent to 22.7 months' final salary. After 30 years, the lump sum would be equivalent to 33.2 months' final salary. These amounts would in turn be sufficient to purchase an annuity, based on a similar rate of return, equivalent to 15.6% and 22.8% of final salary respectively
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