CONFIDENTIAL
XCCI(92)46
14
The proposal that Government should require that at least 50% of the assets of private sector occupational retirement schemes be held in Hong Kong dollars would be criticized as a form of exchange control, and as a crude attempt by Government to protect civil servants' benefits at the expense of private sector employees.
15
Even if the funding problems could be resolved, it might be difficult to achieve over the years an average rate of return higher than the cost of borrowing long term money. This led the consultant to propose that Government should provide an interest rate guarantee to cover interest rate risks on borrowing exceeding the yield on investments. An interest rate guarantee would however amount to a Government subsidy.
16
There are also questions about the practicability of a "receivable purchase" scheme which, to be feasible, might entail a degree of public subsidy. The proposed exchange rate hedging scheme on the other hand has political implications it could be construed as implying that Government has serious doubts over the future strength of the Hong Kong dollar.
Partial Funding
17
This proposal would entail setting aside and maintaining a separate reserve fund, sufficient at any time to meet estimated pension payments for a number of years. It would only be used if recurrent revenue were insufficient to cover pension payments.
18
A five year roll forward reserve fund would require an initial sum of $15 billion. There are obviously serious problems in finding a sum of this magnitude. It would in any case be difficult to justify setting aside funds on this scale for the benefit of one section of society. Moreover it would be uneconomical to tie up funds in this way if we are confident that pensions can be funded by recurrent expenditure.
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Private notes are available after approval.