Newsletter No. 75

2 No. 75 4th October 1995 CUHK Newsletter Staff Superannuation Scheme Have We Done Right? From the UniversityBursar At the beginning of the financial year commencing 1st July 1994 the University had two Staff Superannuation Schemes: one for Terms of Service (A) and (B) staff with 2,521 members, and another for Terms of Service (C) staff with 596 members. The former in its present form was set up i n 1983, the latter in 1992. In this short article we shall be dealing with the former. In 1994 it was beginning to be clear that the first Staff Superannuation Scheme (SSS) was going to run into some solvency problems unless there was a sharp increase in investmentr e t u rnby December 1994. In the previous 12 years the SSS had been running reasonably smoothly, with a rate of investment return comparable to the average return of all other schemes in Hong Kong; but the rate of salary inflation of that period was in some years considerably in excess of the rate of investment return. A gradual erosion of the financial soundness was seen to be emerging md it was recognized that once a large gap appeared, it would be very difficult to make it up and that some action would be required. The University's worst fears proved to be well founded. As on 31st December 1994, the average return of all staff superannuation schemes in HongKong was a negative 13.3 per cent, the worst it had been since the inception of the University's 1 scheme. The return for our own SSS was a negative one of 13.89 per cent. At the same time the government registered a 10 per cent rise in the annual cost of living index, on which University salaries are based. This together with the increased liabilities of the SSS through promotion and benefit increases (2 to 3 per cent p.a.) meant that the University would be looking at a highly disheartening gap of over 23 per cent for that year. What was more, the prospects for 1995 and beyond did not look too promising, with the gap becoming larger unless there was a dramatically increased rate of investment return, which in early 1995 seemed a very unlikely prospect. The problems were further compounded by two other factors: a) The University was not able to increase its contribution to the scheme over and above the 15 per cent on salaries the University Grants Committee had allowed for in the grant allocations. If it could, as in the case of profit-making organizations, the solvency gap could be gradually eliminated, b) The government had the year before passed a bill called theOccupationalRetirement Scheme Ordinance (ORSO). This is a very complicated and some would say unnecessarily restrictive bill whose drafting leaves a good deal to be desired. However, one of the requirements of the bill is to ensure that all schemes in Hong Kong are registered by October 1995. If they are not solvent then, there should be clear actuarial evidence that they will be by October 1998. The University's SSS did not look as if a solvency position could be achieved by that date. Of all the problems that have arisen in the University since its foundation, the SSS proved to be one of the most formidable. It demanded md received everybody's attention. Council members, trustees, scheme members, staff associations, and administrative staff rose to the occasion magnificently and were well supported by legal advisers, actuaries and auditors. There was of course no lack of solicited and unsolicited advice on the solutions — the problem was to find one that was acceptable to all by 31st March 1995. That date was important because from 1st April 1995 the solvency deficit would further increase by 10 per cent due to the anticipated rise in the cost of living index. After a great deal of consultation and several public forums at which members of the scheme were subject to many explanations and advice, it was agreed that the University would essentially do five things: a) freeze members' benefits as on 31st March 1995, with no retroactive adjustments; b) underwrite any solvency shortfall as on that date; c) discontinue guaranteeing any future benefits; d) bring in a new defined contribution scheme as soon as possible and give members some choice of investments; e) introduce compensatory measures where possible in anticipation of some inequity as a result of the changeover. In the end the Council agreed that in view of the relatively short notice for change and given that some members could lose out, additional compensatory arrangements should bemade. One other problem emerged in these negotiations—for anychangein the scheme regulationstobe valid, it was necessary to obtain a positive 50 per cent vote of all members with a non-vote being a no-vote. It was of great credit to the members of the scheme and the staffassociations that around 78 per cent voted for the changes. There was naturally a sigh of relief because if the changes had not been agreed to, the University would have had to register its scheme in insolvent conditions, which in the end could have led to some very punitive penalties. To change the rules of a scheme and indicate that a new one will be introduced is one thing, to implement the changes is another. Since April 1995 the University administration and the Bursary in particular have been working very hard to revise the old scheme and bring in a new defined contribution one as from 1st July 1995. A defined contribution scheme as opposed to the old defined benefit scheme with members' investment choices involves entirely different administrative arrangements, and it is a credit to all those who have been involved in these efforts that so far the University has succeeded in making all the appropriate arrangements for a smooth changeover. A new defined contribution scheme is now in place and the necessary steps to discharge the SSS' insolvency position as on 31st March 1995 and other compensatory measures are being completed. The questions that spring to mind are —was all this necessary, and have we done right? The brief answer must be yes. The consequences of not making any changes or trying to tinker with the present scheme would not have solved the problems generated by guaranteed defined benefit schemes. All over the world governments and organizations have now realized that defined benefit schemes breed dangerous financial consequences, particularly if there are inflation rates as high as there are in Hong Kong. A defined contribution scheme which depends on investment returns is in the long run more secure and soundly based, and if it performs well it could be more beneficial for retirees than a defined benefit scheme. The University has now moved into calmer waters, and subject to no contrary circumstances the new superannuation scheme arrangements should stand the test of time. It is unfortunate therefore that the government is going to bring in the Mandatory Provident Fund in early 1997, which could have some implications on these newarrangements.We shall have to wait and see, but meanwhile the new defined contribution scheme has come into effect and is working satisfactorily. David Giikes New Social Science Dean and Her Gender-free Agenda Three faculties — arts, medicine, and social science 一 held elections for deanship towards the end of the last academic year. Dr. H.H. Ho of the Faculty of Arts and Prof. Arthur L i of the Faculty of Medicine were re-elected by their colleagues for a further term of three years. Elections in the Faculty of Social Science produced a new dean, Dr. Fanny Cheung, reader in psychology. Dr. Fanny Cheung believes that the role of a faculty dean is to help facilitate the development of teaching and research in the various departments within the faculty. Specifically in relation to the faculty of social science, she said: 'Our departments have been doing fairly well in both research and teaching. In particular I think our strengths lie in research related to Hong Kong, China, and the Asia-Pacific region. We have to learn from the centres of excellence in these areas as well as build on our own strengths, with the aim to become the top departments in the respective disciplines in Asia and the world. Given the strategic importance of Hong Kong and the Asia- Pacific region, our social science departments should become major centres of research in their own disciplines .' The quality of the research done by the University's social science departments has all along been recognized and respected by those in the relevant fields. Many staff members have served on the editorial boards of or as consulting editors for international and local journals. Dr. Cheung herself is currently on the editorial board of three international psychology journals, and is a past president of the Hong Kong Psychology Society, and the Clinical and Community Psychology Division of the International Association of Applied Psychology. As to the quality of teaching in the Faculty of Social Science, it is spoken for by the faculty's ability to persistently attract high calibre undergraduate and graduate students. Dr. Cheung, who has taught at the University for nearly 18 years, hopes the faculty will 'maintain its lead among academic faculties territory- wide' .However, the popularity of student places in the faculty may necessitate other considerations. 'We have a very large number of applicants for the quota we have in the departments. This demand should be taken into account by the University administration in the allocation of student quotas.' Incidentally Dr. Cheung is the second woman academic to assume deanship at the University, after Dr. O.W. Lau who became dean of science last September. As a consistent promoter of gender research, does she have anything to say about this seeming trend of more women being elected to deanship in the University? 'I don't tend to differentiate between deans on the basis of gender. It's the academic pursuits I want to promote. But having said that, on a more personal note, I hope to be able to serve as a role model to other faculty members and to draw more attention to the role of women in academia. At present the percentage of female faculty members in the University is still relatively low, especially in the senior ranks. I hope that they can be encouraged to strive for excellence in the University,' Dr. Cheung said. Piera Chen