Let's act today and save for tomorrow
THE elderly need a pension scheme which allows them to share the benefits of
THE debate about the Government's proposals for an Old-age Pension Scheme (OPS) is not about establishing a welfare state. It is about how to ensure that the retired and elderly members of our community share the fruits of our economic success. It is a debate about fairness.
I believe that there is a widespread consensus in the community that we do not do enough at present to ensure that our retired and elderly people have decent and secure incomes. The evidence is unmistakable that the community wants its Government to tackle this issue head on.
After years of deliberation and months of consultation, the time has now come for the Government to give a clear lead. Our proposals for a OPS are exactly that. The scheme we have proposed for public discussion is fair, fast and affordable.
It is fair because it will apply to everyone. The entire workforce, together with employers, will be asked to make a small contribution. The entire community will benefit, including housewives, the infirm and all the other groups left unprotected by a Central Provident Fund (CPF).
It is fast because benefits will become available immediately. They will not be delayed for decades, as they would be under a CPF.
It is efficient because contributions will be lower and administrative overheads will be smaller.
The Government is proposing an affordable scheme, which we could implement today to protect everyone's income tomorrow.
Our OPS is affordable because the level of contributions will be lower than that required to fund a CPF. The Government itself will be contributing as an employer.
This amounts to some $700 million a year if every employee is required to contribute one per cent of his earnings, or $1.4 billion a year if the contribution rate is two per cent.
In addition, the $3.3 billion the Government currently spends each year on income support for the elderly will be allocated to the OPS. The tax forgone due to employers' contributions being tax-deductible will also amount to hundreds of millions.
Once the Legislative Council had given its formal approval, an OPS could be set up and start to provide benefits immediately. By contrast, contributors to a CPF would have to wait up to 40 years to get any meaningful benefits.
Middle-aged contributors joining a CPF can never hope to enjoy more than partial benefits. And like low-wage contributors, their benefits might well prove inadequate for their retirement needs.
Hong Kong already has in place a useful safety net for the elderly in need provided by the social security system and financed from general tax revenues.
But it is generally accepted that we need to do more to remove the shadow of financial insecurity from old age. At the same time, our prosperity depends on retaining a stable, low-tax system. Hence, we cannot prudently fund a general retirement protection scheme by imposing a heavier burden on the tax payer.
We have to find a fairer way of providing the resources needed to meet the community's desire for a comprehensive financial safety net for the retired and the elderly. The only viable alternative to higher taxation is a contributory scheme.
The OPS will provide a comprehensive safety net. Unlike a CPF, its benefits will be certain. They will not be dependent on the success or failure of fund managers. All contributions would go into a separate fund which could be used only to benefit the elderly.
The OPS offers the best chance of financially responsible arrangements to protect incomes of the retired and the elderly.
Benefits will be met from contributions to ensure that pensions do not become an unrealistic burden on the tax payer.
Benefits will improve only in line with the overall performance of the economy, thus guaranteeing that we do not create a crippling burden for the next generation of our workforce.
This issue has been under debate in Legco and the community for a long time. It has taken the Government a long time to make up its own mind.
But no one should be surprised that the Government, like the community, has to be cautious. We are dealing here with the biggest initiative in social policy since the establishment of the housing programme.
We, therefore, need to commission expert consultants to advise the Government on the financial and technical feasibility of the proposal. We also need to listen to the community and consult the Chinese Government.
We aim to complete the consultancy study, consult the community on the findings and make a firm decision on the OPS before the end of next year.
The Government has a clear duty to respond to the community's aspirations and the challenge of increasing numbers of elderly people in the years ahead without adequate income protection for their retirement and old age.
The OPS can achieve this goal faster and cheaper than a CPF or any of the other options which are open to Hong Kong.