HK mulls over plan for retirement protection

HK mulls over plan for retirement protection
A government report showed that despite getting social assistance, one in three elderly Hong Kongers lives below the poverty line - defined as those with less than half the median monthly household income.

Retired security guard David Yu, 70, can barely get by on a HK$2,500 (S$400) handout each month. With no savings or children, the widower has to depend on the government for help.

If a plan to provide universal pension for all elderly Hong Kongers comes to pass, he says wistfully, life will not be so hard.

As Singapore debates how the Central Provident Fund should be improved to better help the elderly retire, fast-ageing Hong Kong is also grappling with the difficult issue of retirement protection after a government-appointed committee made its recommendations last week after a year of discussions.

Hong Kongers above 65 years old should receive HK$3,000 (S$480) a month, the money coming partially from a one-off government injection of HK$50 billion and also from a new "payroll old age tax", with employers and employees contributing between 1 and 2.5 per cent of their salaries. The government will pay half the expected annual expenditure.

"Poverty among our elderly is really serious. And it's not going away - it will go from bad to worse," the head of the five-member team, veteran social work academic Nelson Chow, said in an interview.

But the proposal is highly controversial, with businesses up in arms about the new tax, while others worry about its sustainability. So while Hong Kong's Chief Executive Leung Chun Ying has made poverty alleviation a key plank of his administration, the plan is likely to take a long time to pass, if at all. Chief Secretary Carrie Lam has said the city needs "an informed public debate to get some broad consensus on this very controversial subject before we could really take it forward".

Compared with many of its neighbours, Hong Kong already has a relatively generous social safety net for its one million residents who are aged 65 and above.

There is the Comprehensive Social Security Assistance grant of about HK$3,000 for the destitute after strict means-testing.

Those in the low-income bracket get HK$2,300 under the Old Age Living Allowance. All those above 70 years are eligible to receive "fruit money" - so called because the sum of HK$1,200 is just enough to buy fruit. But recipients get only one of the three.

This is not enough, says Professor Chow.

A recent government report showed that despite getting social assistance, one in three elderly Hong Kongers still live under the poverty line - defined as those with less than half the median monthly household income. This stood at HK$3,800 for a one-person household last year.

The coming decade will mark the peak retirement phase for the city's baby boomers, many of them low-skilled.

"We have to solve this," says Prof Chow.

But the idea of universal pension runs into sustainability problems, with the committee acknowledging that the fund pool will begin to see a deficit from 2026.

By 2041, there would be only about HK$13.5 billion (S$2.2 billion) left.

Economist Raymond Yeung of Shue Yan University says it is "unfair" to the next generation who may contribute more to the pool but withdraw the same sums as today's old. "This will cause new problems, such as poverty among the young," he argues.

One way out is to broaden the tax base. But while some have proposed a corporate tax to fund it, this is strenuously opposed by Hong Kong's powerful business groups. As it is, "a lot of employers say the new payroll contribution adds to their burden and affects Hong Kong's competitiveness", said Prof Chow.

The Hong Kong General Chamber of Commerce has already made clear it is against any retirement protection plan that requires employers to inject money.

Another point of contention is whether the scheme should be for those who need it more. Prof Chow points out that means-testing will drive up administrative costs. It will also meet political roadblocks, with some legislators vowing support for only a universal plan. He gives an example: "We thought of excluding civil servants as they get pensions. But they complained."

Meanwhile, Hong Kong's Mandatory Provident Fund (MPF), which started in 2000, falls far short.

It is managed by insurance firms and banks whose high management fees offset whatever returns may accrue.

A popular suggestion is for the government to take over, but this will meet with huge resistance from the financial industry.

MPF payouts, Prof Chow notes, will not be enough, especially for low-wage and part-time workers. With bosses and workers contributing 5 per cent of salaries, those who earn, say HK$10,000, will get just HK$120,000 after working for 10 years.

Ultimately, the universal pension scheme is a compromise given opposing interests, acknowledges Prof Chow.

"But at least it provides a buffer - and security - for the old."

xueying@sph.com.sg


This article was first published on August 30, 2014.
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