HK civil service seeks fund managers

The Civil Service Bureau of Hong Kong has just invited local master trust scheme providers to submit bids to manage assets under the yet-to-be implemented Civil Service Provident Fund (CSPF), a new retirement plan for the bureaucracy, says Joseph Wong, secretary for civil service.

The CSPF is being established under the legal framework of the Mandatory Provident Fund scheme and it will only outsource investment to existing MPF service providers. There are approximately 20 banks, insurance companies, trust banks and fund management houses with master trust licenses. The new scheme kicks off in mid-2003. Watson Wyatt is advising the Bureau on its implementation and fund manager selection.

Five of them are already being utilized by the Bureau to handle MPF work for non-civil servant employees of the Bureau, says Anissa Wong, deputy secretary at the Bureau. But their work will not be considered in the tender for CSPF work. "They must tender a bid just like the others," she says.

Anissa Wong adds the current five working for non-civil servants were appointed last year on five-year contracts. When those contracts are renewed the Bureau is likely to reduce the number. It is only requesting three fund managers for the CSPF because it found most of its 34,000 non-civil servant employees opted for master trust provider HSBC because of their familiarity with the bank, leaving the Bureau with too much paperwork for little work from other providers. Non-civil servants contribute HK$150 million to the five providers each year.

The Bureau currently has two retirement schemes for its civil servants, although both plans will be superseded by the CSPF. The first plan is for employees hired before July, 1987, provides for 20,000 bureaucrats, while the second covers 150,000 officers. The government's budget covers all payouts, which last year totalled HK$12 billion and is increasing.

The CSPF was born in 1999 as part of a broader civil service reform bill partly to reduce the government's fiscal burden by creating a fully funded scheme, and partly to make a retirement scheme more flexible in order to attract and keep talented employees, explains Joseph Wong. It is supposed to be in line with private-sector standards and will apply to only the most recent hires, now about 600 officers. Although it is still fully paid by the government, the money is set aside for investment and provides employees with segregated accounts, so they and the government can tell just how much is there.

Several critics from the private sector say, however, that the CSPF won't do much to help the bureaucracy attract people in their mid-careers. Nor will it go far stopping the practice of incompetent civil servants hanging on simply because they want their pension. This is mainly because the CSPF requires employees work a minimum of 10 years for their benefits to vest. Moreover it is quite far out of the private-sector standard, both by allowing retirement at the early age of 55 as well as by allowing government contributions to rise as high as 25% of monthly salary when private companies' pension contributions stop being tax deductible after 15%. So all in all, the bureaucrats have carved themselves a cushy scheme paid for by taxpayers - but a lucrative source of business for three fund managers.