TNAG-2671-FCO40-3868-Future-of-Hong-Kong-Sino-British-Joint-Liaison-Group-retirem-1993 — Page 22

CONFIDENTIAL

Nevertheless, a CPF has significant disadvantage -

(a) given the pressure on fund managers to run a CPF with great prudence, there would be a natural tendency for them to adopt a more conservative investment strategy. The average yield from a CPF would therefore very likely be lower than under the voluntary system or a RPS. Given the long lead time for compulsory savings scheme to mature, their final yields would be highly sensitive to even very minor differences in average returns. If a RPS has difficulty in yielding a reasonable return, a CPF almost certainly would do.

worse;

(b)

(c)

in the event that a CPF's yield shows poor or negative returns over a sustained period, Government would be under direct pressure to make up the difference through contributions; and

with a central fund which would build up rapidly and for which there would not be sufficient local investment vehicles to hold, the temptation to divert the use of the fund inside or outside Hong Kong for purposes other than investment returns must be quite high. This would not be in the best interest of contributors.

XCC(93)17

17

Both the RPS and the CPF options share two major weaknesses which highlight the need to look for a more comprehensive solution to the issue under consideration -

(a)

low income contributors would not get meaningful retirement protection in the end, even though they have to go through the same hassle of having to join a compulsory savings account for many years. But this is the group that needs retirement protection most; and

Executive Council