• Thu
  • Jul 31, 2014
  • Updated: 7:44pm
PUBLISHED : Monday, 13 May, 2013, 12:00am
UPDATED : Friday, 07 June, 2013, 11:37am

The missing debate on universal pension

Mike Rowse says legislators' filibuster is achieving the opposite of its goal

There are many reasons why the filibuster by some legislators over the 2013 budget was a very bad idea, but the most important one is that it brought into disrepute the very policy they claimed to be fighting for: a universal pension.

There are two key issues the community needs to debate: whether a universal pension is affordable, and whether it is the right thing to do in principle.

These are the things we should be talking about, not whether the government will grind to a halt if the budget is not approved in the next few days (it won't) or whether there is scope to trim the expenditure of some departments (there probably is, but a few hours' debate is not going to find it).

Let us assess affordability first, because some people who oppose a scheme in principle hide behind the alleged lack of money. Start by assuming that the general retirement age should be raised to 65 as quickly as reasonably possible. Then take it that the existing fruit money plus personal savings and family support can take our elders through to their 70th birthday. So, our universal pension scheme kicks in when a permanent resident reaches 70.

Next, we need to select an amount which should just about cover essentials. I'm going with HK$6,000 per month.

Extrapolating from the 2008 census data, there are about 780,000 people who the new pensions authority would need to pay out to; let's say 800,000 to allow a margin for error.

A back-of-the-envelope calculation suggests we are looking for HK$4.8 billion per month or almost HK$58 billion a year. These are very large sums indeed. Where are we going to find them?

Obviously, people of working age are going to have to chip in the bulk of it. The same census data gives us over 4.8 million people between the ages of 20 and 64. So if they each contributed (or someone contributed on their behalf) HK$1,000 per month, the income of the pensions authority would equal or exceed the amount it had to pay out.

All people in regular employment could afford this sum (or their employer could pay on their behalf). In fact, it is much less than contributors to the Mandatory Provident Fund scheme (which should be scrapped) are paying. Ways would have to be found to make other economically active people, who might evade MPF contributions, also chip in.

Every effort should be made to reduce the number of non-payers but, still, at the end of the day, there would be a significant number whose share would have to be paid from general revenue. However, the sums involved would not be as alarming as the eye-catching figures quoted earlier.

There can be a lot of debate around the fringes, but the main conclusion is that if there is the political will and community consensus, then it is possible to put together a scheme that is affordable.

So we come to the issue of principle: should we? Many will be uncomfortable with the idea that a universal scheme breaks the link between what people pay in and what they can get out. Those who die before they reach 70 will have paid in for many years and got nothing out for themselves (or their heirs). Others will not have paid in a single dollar but will draw out for many years. Is this just?

The absence of means testing will offend purists. Yet the way such testing is conducted at the moment is labour-intensive, inefficient, inaccurate and demeaning to the beneficiaries.

Will we have engendered an entitlement culture; is this the thin end of the wedge that will lead to higher taxes and a welfare state?

These are very important issues, and this is what we, as a community, should be discussing. But we are not; we don't have the time or energy because of this daft filibuster.

Mike Rowse is the search director of Stanton Chase International and an adjunct professor at the Chinese University of Hong Kong. mike@rowse.com.hk


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This article is now closed to comments

I wholeheartedly agree with Mr Rowse that this is a point which needs to be debated and considered comprehensively, on these pages, in Ex/LegCo and elsewhere.

Yet, while Mr Rowse's numbers are correct, the picture he paints is too rosy. While we now have some 800k people aged 70 or older, this number will grow substantially in the coming decade or so. According to the Hong Kong Population Projections 2012-2041, the number of citizens aged 70 or older will exceed 1.3 million by 2028. So, in 15 years time, a $6,000 per month pension would cost $8bn in total, or $94bn per year (I am leaving inflation adjustments out of the calculation).

The total recurrent government expenditure now stands at about 300bn. Implementation of a universal pension would thus grow this by some 30% in real terms in the coming 15 years.

That is all fine, and I'd be in favour, but let's be sensible and realise that such a huge increase in government expenditure can only be sustained if we also revisit the revenue side of the equation. It can't just be financed by twiddling a little with the MPF figures, which by the way, is a forced savings scheme. Converting it to a tax like Mr Rowse proposes may be one solution, but such a fixed-amount premium tax is obviously hugely regressive, which is hardly contributing to the ideal of a fair and just society.

So by all means, let's debate the universal pension, but a very important part of the debate has to be: what taxes will pay for it.
If we can fire or ban these 4 filibusting idiots from Legco... The increase in productivity of Legco would probably pay for the universal pension they are seeking...
Mr Rowse is correct in stating that there does need to be genuine debate on universal pensions free of means testing. I like to think of an advanced, developed society as a humanistic one, based on relatively common goals and mutual care and compassion. Of course, the inevitable result would be what some would refer to as a welfare state, it would seem that is the next stage of development.
@jve: The revenue side will definitely be an issue. I would foresee partial funding from general revenue and partial funding from a converted MPF as Mr. Rowse proposes, but it may not be enough.
"These are very important issues, and this is what we, as a community, should be discussing. But we are not; we don't have the time or energy because of this daft filibuster." To the contrary, one could argue that the 'daft filibuster' is the reason this article was written.


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