TNAG-1520-FCO40-2081-Employment-in-Hong-Kong-1986 — Page 43

CONFIDENTIAL

11

Employee reaction

administrative

(see

Central

36.

To reduce the

costs of a Provident Fund to an acceptable level (the administrative costs of the Singapore Central Provident Fund accounted for 63% of its income when it was introduced with a membership of 240,000, but with increasing membership, these have fallen to around 2%), it would be necessary for a CPF to cover a substantial percentage of the territory's workforce. It is difficult to estimate with any accuracy what the cost would be of administering a CPF in Hong Kong. For purposes of calculation (see Annex, paragraph 3(c)), it has been assumed that costs would be

would be equivalent to 2.25% of contributions at a 10% contribution rate. While this figure must be treated with reserve, administrative costs would clearly be substantial. It is for this reason that a CPF scheme should be compulsory and that any categories of employees exempted should be minimised (exemption of civil servants, for example, would amount to a major restriction in coverage as would exemption of persons already covered by a private scheme). Consequently, a broad measure of support for the scheme is essential.

37.

The

term

"central

provident

fund"

( + + 5 + ) tends to evoke a degree of instinctive support which a more descriptive title making clear its essential feature as a centralised compulsory savings scheme for those in employment would not. Even so, and despite claims made by various spokesmen on the subject, it is far from clear that long-term support would be forthcoming from the majority of workers covered by the scheme and two factors in particular suggest that it may

not.

38.

Firstly, workers in

in Hong Kong generally prefer higher take-home pay to additional fringe benefits. This is consistent with the assumption that economists generally make that payment in cash enables an employee to attain a higher level of utility than payment in kind because with a a cash payment he can choose the basket of goods and services that suits him best. A CPF scheme is, in essence, a forced saving programme and it is unlikely that the split between present consumption and future consumption that would be implicit in the scheme would be in line with the wishes of employees generally. Indeed, if all individual employees were already choosing to make the split implicit in the CPF, there would be no need for such a fund.

CONFIDENTIAL