(c)
CONFIDENTIAL
guarantee against defaults/failures. They argue that the mandatory nature of the contributions means that Government should be obliged to take on the responsibility to safeguard the security of these funds. This leads to support for the funds to be managed and invested centrally in the form of a CPF.
(ii) While the Administration accepts the need for monitoring and regulation of retirement funds, we consider that the perceived risks to the security of privately-run retirement funds may have been over-exaggerated. Many well- established private investment agencies now manage huge amounts of provident/retirement funds with no apparent security problems. Prudential supervision together with adequate forms of insurance coverage should minimize such risks.
(iii) On the other hand, the disbenefits of a CPF might have been underestimated by many: the economic disbenefits of a mandatory scheme, the possible risk of political pressure to increase the rate of contribution; the need for a huge bureaucracy to manage a CPF; the possible lower investment returns; and the temptation for the fund to be used for other purposes all call for great caution in examining it as an option. Workers might also see it as an additional tax and put pressure on Government to make a contribution so as to decrease the burden on themselves.
Whether there should be a financial guarantee against defaulting/failed schemes.
(i) This issue is regarded by many as crucial in determining whether retirement funds contributed under a mandatory system should be entrusted to private investment agencies.
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