LegCo Panel on Public Service

I. Date of Next Meeting and Items for Discussion

The next meeting would be held on Monday, 27 May 1996 at 10:45 a.m. to discuss the following items:

1. Measures to tackle the issue of non-performers in the Civil Service;
2. Transition of the Civil Service

2. In response to Ms Emily LAU’s question, Mr W K LAM said that any significant changes in the terms and conditions of service of civil servants would be presented to the Panel. At the Chairman’s request, Mr W K LAM undertook to provide for members’ information changes that would take place in the next six months.

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II. Civil Service Pension Commitment

(Appendix I to LegCo Paper No. CB(2) 1024/95-96)

3. Ms Sandra LEE briefed members on the points set out in the information paper. She advised that it had been a long-standing policy of the Administration to appoint civil servants on permanent and pensionable terms in order to achieve stability and continuity of the civil service. At present, over 177,000 civil servants were on pensionable terms. Out of the 4,000 officers on agreement terms, about 1,700 of them had, prior to their contract appointment, served for 400 months, retired from their original posts and subsequently re-employed. Concerning pension commitment, it was estimated that there would not be a drastic increase of the annual pension expenditure, which would continue to remain within the range of 5% to 6% of the government’s annual operating expenditure in the foreseeable future. In comparing the two types of appointment, the value of pension on-cost was more or less the same as contract gratuity, being about 25% of the total salary received during the service period. Ms LEE said that the Administration had adopted flexibility while applying the contract system, by allowing Heads of Departments the discretion to offer contract employment in exceptional circumstances. This included, for example, where there were genuine difficulties to recruit staff to the permanent and pensionable establishments of certain grades, or where the departments concerned had to carry out projects of a one-off nature, or short-term projects for which there was a time limit.

4. Dr CHEUNG Bing-leung enquired if, as the level of benefits for both pensionable and contract staff were comparable, the Administration would consider reducing the amount of contract gratuity, thereby making the pensionable appointment system relatively more attractive. Ms LEE replied that since the Association of Expatriate Civil Servants was currently lodging an appeal with the court concerning their terms of employment, a review to study the transfer of contract staff to permanent establishment would have to be awaited, pending the outcome of the appeal.

5. Ms Emily LAU expressed worry at the government’s pension commitment becoming an ever increasing burden to the community. She asked for an explanation of how pension expenditure being a steady percentage of 5% to 6% of government’s annual operating expenditure was arrived at. Mr LAM replied that the Administration had been trying to make the forecast as accurately as possible, taking into account, amongst other things, factors such as the possible increase of the civil service establishments, the estimated number of retirees and the effects of inflation on civil service pay trend etc. Forecasts made in the past few years did bear out quite accurately. Also, since there were no indications to suggest that there would be a drastic change in the number of staff retiring in the future, the existing forecast of pension expenditure should be a reasonably accurate projection.

6. On Dr Philip WONG’s question on the pension entitlement of a civil servant who first served under agreement terms and subsequently on pensionable terms, Mr LAM advised that the basic principle was that only the period during which a civil servant was employed on pensionable terms would be reckoned in calculating his pension entitlement. There would be no pension entitlement in respect of that period of service for which a gratuity had already been paid. He stressed, however, that the calculation of pension was a very complicated issue which could vary among cases. For example, under specific circumstances, an officer who had received a gratuity payment could buy back the pension entitlement.

7. Mr CHEUNG Man-kwong said that it would be extremely difficult to predict with accuracy the number of civil servants who would seek early retirement. He wondered if the sovereignty transfer in 1977 would have any significant impact on the number of such early retirees, and if such was the case, how the government managed to keep pension expenditure within the same range as predicted in order not to affect the overall government spending. Mr LAM admitted that cases of early retirement were more difficult to predict than normal retirements. But there was still a basis for making forecast because civil servants were required to give at least 12 months’ advance notice of their intended retirement. Although those on the New Pension Scheme could choose to forfeit one month’s salary to resign from the service immediately before they reach their retirement age, such cases were extremely rare because it would severally affect their pension entitlements. In making the 1996/1997 forecast, the Administration had anticipated that the number of officers retiring would increase by a certain extent. Nevertheless, Mr LAM maintained that with the handover now only 14 months away, there was no reason to believe that the number would go up drastically.

8. Mr CHEUNG Man-kwong said that as notice period required of contract staff to leave service was relatively shorter than their pensionable counterparts, there might be a sudden heavy increase in government expenditure if a considerable amount of contract staff chose to terminate or not to renew their contracts before 1997. He asked how the Administration would prepare for this situation. Mr LAM said that contract staff should be aware of the losses they might suffer if they opted to leave service before their contracts expired. At present, there was no alarming increase of such cases. On the other hand, with the number of contract staff currently accounted for only less than 3% of the civil service, Mr LAM expressed that the situation should be manageable.

9. Mr CHAN Wing-chan asked whether it would be advisable for the Administration to discourage contract arrangements in order to maintain the stability and continuity of the civil service. Mr LAM remarked that stability and flexibility could go hand in hand. As Heads of Departments normally focused on operational needs while Civil Service Branch emphasised stability, to strike a balance, Heads of Departments were encouraged to make use of contract appointments as a means to tackle short-term or time-limited projects. In most other cases the policy of favouring permanent and pensionable service continued to hold. He also clarified the meaning of “pension on-cost”, which referred to the notional amount which needed to be set aside to meet future pension liabilities in respect of an officer expressed as a percentage of his salary.

10. Dr CHEUNG Bing-leung stated that under the Government’s New Pension Scheme, civil servants who left service after serving for 10 years or more would be entitled to a deferred pension upon reaching their retirement age. He was concerned whether these officers would in due course become a significant part of the government’s pension recipients. Ms LEE remarked that the number of officers on the New Pension Scheme who resigned after working for ten years or more was not large. She stated that some useful figures might be available from the Treasury and she would provide it for members’ information.

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11. At members’ request, Mr LAM also agreed to provide information relating to the following issues:

1. the basis for the estimated pension on-cost compared with contract gratuity;
2. the basis on which the estimated annual pension expenditure, at 5% to 6% of government’s annual operating expenditure, was made;
3. information which Civil Service Branch had on pension schemes adopted by overseas countries;
4. number of ex-civil servants with deferred pensions.

(Post meeting note: Information provided by the Administration has been circulated to members vide LP CB(2) 1427/95-96)

III. Review of Overseas Education Allowance

(Appendix II to LegCo Paper No. CB(2) 1024/95-96)

12. At the invitation of the Chairman, Mr M V STONE briefed members on the review of the Overseas Education Allowance (OEA) Scheme. He said that the Administration had proposed in the Consultation Document on Common Terms of Appointment that it was no longer appropriate to continue with the provision of an overseas education allowance to new recruits, given the significant improvements of the quality and level of education in Hong Kong. It was therefore proposed that OEA be stopped for new civil servants. The proposal was agreed by the Chinese side of the Sino-British Joint Liaison Group. As it involved a change of conditions of service, a draft circular had been issued to the staff side for consultation. Subsequently the staff sides of two councils, due to their reservations with the recommendations, had expressed their wish to discuss the issue further with the Administration.

13. Ms Emily LAU expressed concern about the enormous amount spent on OEA, costing tax payers about $400 million for the benefit of 3,653 children. She asked whether it was possible to cease providing the benefit to all civil servants. Mr STONE replied that the Administration did not want to take the unusual step of unilaterally changing the terms and conditions for existing staff because of the contractual implications involved. There might be officers already having children studying abroad or some might be planning to do things likewise. At this point in time, therefore, the Administration felt that it was best to confine those to be affected to new recruits. Currently, over half of the existing civil servants were above the age of 35. Considering the time frame for these officers to have children, it was anticipated that the number of staff drawing OEA would drop off fairly quickly in the next 15 years or so.

14. Responding to a further question by Ms LAU, Mr STONE advised that under the Common Terms proposals, there would be different transitional arrangements for contract officers. If the proposal to withdraw OEA to new recruits were to be implemented, existing contract officers who were not yet drawing OEA would not be eligible. Under the existing scheme, local officers were permitted to send their children to the UK, and for overseas officers, their places of origin. In view of the likely financial implications, the Administration had no plan to open up a wider field of countries. As regards eligibility, education allowance itself was permissible up to the age of 19, while passages were up to 21 if the person was still in full time education. Persons receiving university education would also be eligible.

15. Dr CHEUNG Bing-leung shared the view that only the new recruits should be affected by the cessation of OEA. He echoed a staff proposal to allow civil servants to draw the upper limit of Local Education Allowance (LEA), upon implementing the change as regards OEA, if they sent their children overseas for study. Dr CHEUNG said that he understood that the proposal had been turned down by the Administration but he wished to know of the reasons for rejecting. Mr STONE answered that LEA was specifically designed to help officers meet some of the expenses for local education. The amount of LEA spent per officer was substantially less than that of OEA but the limit of reimbursement could be quite high. Therefore if it were to open the LEA scheme so that officers could use the limit of reimbursement for overseas education, there would be huge financial implications. On Dr CHEUNG’s enquiry on the costs involved, Mr STONE said that he could not provide a figure because the Administration had no idea how many officers had children studying in countries other than UK, nor the number of children currently overseas being supported by their families.

16. Ms Emily LAU queried in what way could OEA help to strengthen ties when it was originally extended to cover all civil servants. She further enquired whether OEA would still be confined to children studying in UK after 1997 and of the number of people currently on the scheme who were children of expatriate officers. Mr STONE clarified that there were two reasons for strengthening ties. One was related to grounds of parity and the other a wish to strengthen the tie between Hong Kong and UK to provide opportunities for local officers’ children to gain education overseas. There was no plan to change the geographical spread of the OEA, confining the country to UK for local officers. For 1995/1996, 3,420 people covered under the scheme were children of local officers while 233 were children of expatriates.

17. Addressing members’ concern over the huge financial responsibility being placed on the future Special Administrative Region (SAR) Government, Mr LAM said that the Administration was taking a cautious approach in reviewing the terms and conditions for civil servants, heeding new developments along the way. He assured that the concern of members would be taken into account.

18. Ms Emily LAU enquired whether, after the transfer of sovereignty, all the existing benefits enjoyed by civil servants would remain unchanged. Mr LAM asserted that the major principle was that in accordance with the Basic Law, existing civil servants’ terms and conditions would not be changed unilaterally. However, constant reviews were being made. In some cases steps had been taken to improve and modernise on some of the minor terms with the concurrence of the staff. As regards OEA in particular, he undertook to report back to members on the latest developments once consultation with the staff side was finalised. (Post meeting note: The Administration reported the development to the Panel at the meeting on 27 May 1996)

IV. Policy on Declaration of Investments by Civil Servants

(Appendix III to LegCo paper No. CB (2) 1024/95-96)

19. Mr Patrick L C LAU briefed members on the policy on declaration by civil servants of investments outside Hong Kong. He stated that the Administration had regarded that a blanket requirement of all civil servants to declare all their investments outside Hong Kong would be unreasonable and in breach of Article 14 of the Bill of Rights Ordinance. Therefore, a decision had been made to limit the declaration requirement to officers holding specific posts where their investments outside Hong Kong would involved conflicts of interest with their official duties. A Civil Service Branch (CSB) Circular had been issued in January 1996 setting out advice and directives on how to deal with matters which could give rise to conflicts of interest. At the same time, the Secretary for Civil Service had asked Heads of Departments to consider, in the light of operational needs, requiring officers in designated posts where a potential conflict of interest might arise between their duties and their private investments outside Hong Kong to report such investments. To date, 287 posts in 80 Departments and Branches had been designated as being required to observe the declaration requirement.

20. Mr CHEUNG Man-kwong said that he had recently learned from the Independent Commission Against Corruption (ICAC) that quite a number of civil servants had made use of their investments in China to engage in corruptive activities. On this issue he had written to ICAC to enquire about how ICAC had dealt with the declaration of investments by its staff. In response, ICAC replied that effective 19 January 1996, all ICAC staff were mandatorily required to report all their investment interests in China and Macau, including also those of their spouses. Mr CHEUNG wondered why there was a different interpretation of the legality or otherwise of requiring civil servants to declare their overseas investments. He opined that officers in the disciplinary forces who, by virtue of their duties, had frequent contacts with crimes and other illegal activities, and those government officials who were closely linked with the conduct of business activities in China, should top the priority in making declarations.

21. Mr LAM replied that the present declaration policy already allowed two different situations in which civil servants might or might not declare their overseas investments. Where conflicts of interest were likely to arise between the officers’ official duties and their private investments outside Hong Kong, they would be required to declare such investments. Mr LAM expressed that while he could not comment on ICAC’s policy, the Administration considered it more appropriate to issue clear guidelines to civil servants and leave it to the Heads of Departments to decide, in the light of their operational needs, what designated posts should be subject to the declaration requirement. He supplemented that when situation changed over time, there might be more officers falling under the declaration rule in future.

22. In reply to Mr CHAN Wing-chan’s questions, Mr LAU stated that Civil Service Regulations (CSRs) and CSB Circulars set out guidelines to assist civil servants in deciding if an investment was relevant to or related to the official duties of their posts. Contravention of the CSRs and the Colonial Regulations would result in disciplinary actions against the offender, and in the most serious cases, dismissal.

23. Dr CHEUNG Bing-leung asked for the total number of officers involved under the 287 posts designated for the declaration requirement and which departments had relatively larger number of these posts. He requested a breakdown of these posts by departments. Mr LAU said that out of the 80 Departments and Branches which had these designated posts, the major ones included the Constitutional Affairs Branch, the Disciplinary Services, the Audit Department, the Civil Aviation Department, the Inland Revenue Department, the Lands Department and the Television and Entertainment Licensing Authority etc. Mr LAU undertook to provide details of the information requested by members. (Post meeting note: The requested information provided by the Administration has been circulated vide LP CB(2) 1390/95-96)

24. In response to the Chairman’s query on the number of unreported cases under the new declaration rule and the Departments involved in such cases, Mr LAU said that there was so far no such case since the rule was introduced in January 1996.

V. Transition of Civil Service

25. Mr LAM briefed members on the update of this standing item of discussion. He stated that in the declaration made last Sunday by the UK Foreign Secretary and the Foreign Minister of China, the importance of maintaining the political neutrality of Hong Kong civil servants was upheld by both governments. The Administration welcomed the public guarantees made by the Chinese side on several occasions that civil servants would continue to stay in service after 1997. Such guarantees would serve as a positive message which would certainly boost the confidence and stability of the civil service. He added that it was hoped that in the Chief Secretary’s impending visit to Beijing, the issue concerning the smooth transition of civil servants would be further discussed.

26. Mr CHEUNG Man-kwong asked whether Mrs Anson CHAN would be visiting China in her personal capacity, or in her official capacity as Chief Secretary of the Administration. He cautioned that it was a cause for worry if discussions were to take place in private meeting where no official records would be kept and hence no guarantee that any outcome would be binding. Mr LAM replied that the visit was being arranged and he assured that a public announcement would be made as soon as all the details were finalised.

27. Ms Emily LAU opined that in formulating and executing government polices, civil servants did have a distinct stance to uphold. Therefore it could hardly be said that civil servants should be politically neutral. Mr LAM responded that it was the duty of senior government officials to explain to the public the background of, and the reasons underlying, the implementation of government polices with a view to enhancing the public’s acceptance. While there clearly was a government stance, civil servants did not form political parties and there was no political line to follow. Civil servants pleaded allegiance to the people of Hong Kong and this was manifested by being loyal to the existing government and to the future SAR government. He held that political neutrality of civil servants should be viewed in this respect.

28. There being no other business, the meeting ended at 12:25 p.m.

LegCo Secretariat
31 July 1996