For discussion FCR(95-96)110
on 19 January 1996

ITEM FOR FINANCE COMMITTEE

HEAD 120 - PENSIONS
Subhead 015 Public and judicial service pension benefits and compensation
Subhead 017 Surviving spouses’ and children’s pensions, widows’ and orphans’ pensions and increases

Members are invited to approve supplementary provision of -

1. $681 million under Subhead 015 Public and judicial service pension benefits and compensation; and
2. $11 million under Subhead 017 Surviving spouses’ and children’s pensions, widows’ and orphans’ pensions and increases.

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PROBLEM
PROPOSAL
JUSTIFICATION
FINANCIAL IMPLICATIONS
BACKGROUND INFORMATION
Head 120 - Pensions Subhead 015 and Subhead 017

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PROBLEM

The approved provision of Subheads 015 and 017 under Head 120 Pensions is not sufficient to meet increased expenditure in 1995-96.

PROPOSAL

2. The Director of Accounting Services (DAS) proposes supplementary provision of -

1. $681 million under Subhead 015 Public and judicial service pension benefits and compensation; and
2. $11 million under Subhead 017 Surviving spouses’ and children’s pensions, widows’ and orphans’ pensions and increases.

JUSTIFICATION

3. On the basis of the actual expenditure for the eight months from April to November 1995, DAS estimates that expenditure for the whole of the financial year under Subheads 015 and 017 will exceed the approved provision by $681 million and $11 million respectively, calculated as follows -

4. The shortfall under Subhead 015 is due to increased expenditure on pension payments as a result of -

1. an average increase of 10.1% in the commuted pension gratuities and pensions payable to civil servants retiring in 1995-96, as a result of the 1995 civil service pay adjustment. This accounts for $344 million of the supplementary provision required;
2. a statutory increase of 8.7% in the pensions payable to existing pensioners with effect from 1 April 1995 authorised under the Pensions (Increase) Ordinance. This accounts for $220 million of the supplementary provision required; and
3. payment of commuted pension gratuities to 78 officers in the Education Department who opted for retirement on abolition-of-office terms instead of transfer to the employment of the Hong Kong Institute of Education (HKIEd) after the expiry of the secondment period on 1 September 1995. We have made no provision for these payments in the 1995-96 approved Estimates because it was difficult at the time of the Estimates preparation to predict the number of officers who would opt for retirement as against continued employment in the HKIEd. This accounts for $117 million of the supplementary provision required.

5. The shortfall under Subhead 017 is mainly due to an increase in dependant pension payments as a result of a statutory increase of 8.7% with effect from 1 April 1995 authorised under the Pensions (Increase) Ordinance and the Widows and Orphans Pension (Increase) Ordinance.

FINANCIAL IMPLICATIONS

6. We are seeking total supplementary provision of $692 million under the two subheads. If Members approve the proposal, we shall offset the supplementary provision required by deleting an equivalent amount under Head 106 Miscellaneous Services Subhead 251 Additional commitments.

BACKGROUND INFORMATION

7. Subheads 015 and 017 are for meeting various pension payments under the relevant pensions legislation. A full description of the ambit of these two subheads as contained in the Estimates is reproduced at the Enclosure. Pension payments to officers retiring in the year are based on the prevailing civil service pay taking into account the annual pay adjustments made. To maintain the real value of payments to existing pensioners, we adjust them annually on 1 April in accordance with the increase in the Consumer Price Index (A) in the previous year. In line with normal practice, we do not allow for these inflation-related adjustments under the relevant subheads in the original Estimates. Rather, we would deal with any net additional requirement that may be required during the financial year through supplementary provision.

8. By virtue of the Pensions (Increase) Ordinance and the Widows and Orphans Pension (Increase) Ordinance, pensioners and beneficiaries under the surviving spouses’ and children’s pensions and the widows’ and orphans’ pensions schemes receive an increase of 8.7% to their pensions with effect from 1 April 1995. This is in line with the increase in the Consumer Price Index (A) in the previous year.

9. In June 1995, Members approved an average increase of 10.1% in the salaries of civil servants with effect from 1 April 1995.

Civil Service Branch
January 1996

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Enclosure to FCR(95-96)110

Head 120 - Pensions Subhead 015 and Subhead 017

Subhead 015 Public and judicial service pension benefits and compensation is for the payment of -

1. pensions, gratuities and other allowances under the Pensions Ordinance, the Pension Benefits Ordinance and the Pension Benefits (Judicial Officers) Ordinance to current pensioners and officers who will retire in the Estimate year, and increases in such pensions under the Pensions (Increase) Ordinance;
2. pensions under the Police Force Ordinance, 1932 and Police Officers (Special Cases) Pensions Ordinance, 1954 to police officers who retired on or before 1 January 1947, and increases in such pensions under the Pensions (Increase) Ordinance;
3. pensions to agreement officers, or dependant pensions to dependants of deceased agreement officers, on account of injuries received whilst on duty, and increases in such pensions; and
4. compensation under the Limited Compensation Scheme.

2. Subhead 017 Surviving spouses’ and children’s pensions, widows’ and orphans’ pensions and increases is for -

1. the payment of pensions to surviving spouses and children of deceased contributors to either the Surviving Spouses’ and Children’s Pensions Scheme or the Widows and Orphans Pension Scheme, and for increases in payment for these two types of pensions under the Pensions (Increase) Ordinance and the Widows and Orphans Pension (Increase) Ordinance;
2. the return of contributions plus interest or addition under section 14 of the Surviving Spouses’ and Children’s Pensions Ordinance to contributors who are never married or are widows/widowers/divorcees, or who are not eligible for a public or judicial service pension on leaving the service; and
3. the refund of contributions plus interest under section 11 of the Widows and Orphans Pension Ordinance to contributors who, on leaving the public or judicial service, remain bachelors or widowers without children who are eligible to receive these pensions.

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