• Sun
  • Dec 28, 2014
  • Updated: 6:54am
PUBLISHED : Sunday, 24 August, 2014, 3:43am
UPDATED : Sunday, 24 August, 2014, 3:43am

First, let's provide for the elderly poor in Hong Kong

Philip Bowring says before we tackle a future pension fund, it's vital to address the problem of old age poverty, the result of forces that have created such an unequal society


Philip Bowring has been based in Asia for 39 years writing on regional financial and political issues. He has been a columnist for the South China Morning Post since the mid-1990s and for the International Herald Tribune from 1992 to 2011. He also contributes regularly to the Wall Street Journal, www.asiasentinel.com, a website of which he is a founder, and elsewhere. Prior to 1992 he was with the weekly Far Eastern Economic Review, latterly as editor.

The report on pension scheme options is very welcome, if only because it may result in debate and even action on a topic which the bureaucracy would rather not have to address. Whichever way one looks at it, it involves spending public money on items other than costly infrastructure projects with scant economic return.

There are two issues to be addressed. They are linked but have very different time scales. One is elderly poverty. The other is a scheme to provide for the future that meshes with the MPF.

The most urgent is to address the very real poverty endured by a large percentage of old people, the poverty which sees 80-year-old women bent double pushing carts of rubbish in an effort to make a living. This problem will probably become worse as the numbers of those over 65 continue to increase while welfare remains minimal and family support systems are undermined by issues ranging from migration to housing costs.

The first principle must be to recognise the processes by which Hong Kong has become such an unequal society and one where the old are the worst hit. The past 40 years have seen capital values - in effect real estate and shares in public companies - rise much faster than either salaries or gross domestic product. The beneficiaries have been threefold.

Firstly the government, through its control of land supply which feeds through to capital revenue, rents and profits tax.

Secondly, the developers. One must recall that, prior to 1998, Hong Kong GDP figures had a separate item - "real estate developers' margin". This was so high as to be embarrassing, so it disappeared. But the margin is still there. The next beneficiaries were those fortunate enough to acquire more than one property. Owning your own home, as the majority now do, is of scant relevance to disposable income, as people need somewhere to live. But those with two or more properties have mostly enjoyed a free ride to relative riches.

Finally, there are those who have invested in the stock market over a sustained period. Contrary to media imagination, individual stock ownership is not especially high in Hong Kong - though there have been speculative spikes which usually led to small investors being ripped off. Indirect share ownership through the Mandatory Provident Fund and life insurance has been growing but is mostly too recent to have much impact on the net worth or income of the majority, and almost none on those now over 60.

So, while owners of real estate and shares have mostly been gaining, and civil servants treated to featherbed welfare, the mass of small savers with savings accounts have seen their money eroded by interest rates, which for much of the time have lagged behind the rate of inflation.

All classes of Hong Kong society have records of high personal savings rates. But the thrift of middle- to lower-income workers has been ill-rewarded while the rich (including the government) have, by the same process, got richer.

It appears that the Scrooge in charge of finances, John Tsang Chun-wah, is incapable of recognising these obvious facts of Hong Kong's history since 1970. That explains why he bemoans "welfarism" while wasting billions on dubious projects ill-managed by a civil service that is at the trough itself. (The financial sector faces much tougher insider dealing legislation than the rules applying to civil servants involved in land deals).

So, a starting figure for the transfer of government assets to a new pension fund should be more like HK$150 billion than the HK$50 billion proposed. That would only be 10 per cent of the government surpluses accumulated through years of asset-price escalation at the expense of those not owning disposable assets.

The payments from the fund, plus those out of recurrent revenue, should also be weighted towards those now in or near retirement, because they are the ones who built most of the surpluses. For the future, there should be a gradually increasing reliance on the MPF - except that its still-high costs make it a poor vehicle for mass savings. At present contribution levels, the MPF can never provide adequate retirement income on its own but, over time, will reduce the burden on government.

Means testing of benefits, opposed by the report, is a good idea in theory but can be difficult to implement fairly and cheaply. But it is hard to say why 65 should be the starting age for untested payments. Given that life expectancy is now over 80 years, this would be a good opportunity to start edging up the pension age, at least to 67, as is now happening in some Western countries.

Nor is it clear why additional costs to the government of a pension scheme should be funded by a levy on personal incomes ranging from 1 to 2.5 per cent. It would be much simpler to use the existing tax system to raise money from expenditure rather than income - which has long supposedly been a goal of government. Better use of rates and a hefty tax on energy use would be a simpler and fairer system than levies either on profits or salaries.

But these are relatively minor issues compared with the urgency of addressing old age poverty now, and the future of an economy with a workforce participation rate that is destined to decline rapidly.

Philip Bowring is a Hong Kong-based journalist and commentator


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This article is now closed to comments

John Adams
As usual , Mr Bowring, your comments are right on the ball.
I wish you would stand for CE !
One thought : Having just come back from a road trip round Western Europe I was surprised to find how many countries charge tolls for their motorways (Switzerland, Italy, France...) . User pays principle. Same in China.
Then, as I think Jake mentioned, why not fund the 3rd runway (if indeed we need it) with bonds? And/or departure taxes. That makes sure the propositions are truly financially viable.
When the MTR expands we all have to pay in higher fares - same same.
Surely the land of HK belongs to the people, not to the government and certainly not to scrooges with poor math like John Tsang.
So proposal :
(1) Put ALL land sales into the pension fund
(2) Fund all new major roadways, bridges and tunnels to nowhere by tolls so the user pays ( That would REALLY prove if they are needed !)
(3) Fund all other major infrastructure works like airport runways with bonds , departure taxes, etc
The old ladies pushing carts don't use the airport, bridges and tunnels to nowhere, and probably not even the MTR. They certainly don't live in new URA flats !
Yet the land beneath their feet is daily being sold away and given to the tycoons who make massive "real estate developers' margins" at the public's expense.
To John Adams,
Agree. A good article and a good posting..
Pay by bond for infrastructure that costs plenty was not viable during the colonial time largely due to time factor between the maturity of bond and the existence of the government. Not so anymore despite that HKSAR has a time limit too. Hong Kong’s future is much more ascertained in that the central government would without choice to honor obligation for the payback on capital investments. I will not doubt for that if a government bond is used the central government will have a say.
Aside from political consideration, it is just common sense that infrastructures for most part of the world including mainland China are paid by bond. It is fair for more generations to pay but making services available earlier.
Why this third runway or the WKCD is not set on this reasonable tool. I think it was not lack of common sense. It is more an insidious act.
It is using the public money agree or not by the public which otherwise investors who purchase the bond of whose money would have to be used. When the public money is used, the would be investor otherwise would have the third runway and WKCD free.
And to top the insult, these few folks most likely are the ones who can make a profit immediately while the public is footing all the bills. More insults when the public don’t even want them.
The user pay concept needs to be clarified each time when it is used.
John Doe, you seriously think somebody pushing a cart around town is making a living? You seriously think that somebody of that age is likely too be qualified to work in a so-called "knowledge economy"? Your piece is perhaps the most stark example I have seen of an individual wanting to shirk a social responsibility.
Just because Philip Bowring has seen some elderly pushing a cart does not mean that there is a need for a pension scheme. In fact, if these elderly are fit for work, there is - to the contrary - even less of a need for them to get public money, as they are able bodied and can make a living. I would personally much rather support training schemes for them so that they can make a contribution to society even in older days, and support employers who can arrange work for them. This will keep them mentally fit, happier and in touch with society. Arguably, with increasing life expectancies, people who are able to work longer should work longer. There is nothing sacrosanct about 65 or 67 years if one can live until 90 or beyond. These age limits were set when life expectancies were much lower than today and ought to be revised upwards to match actual physical reality. Further, the inconvenient truth is that many elderly have failed to save during the good times or are at bad terms with family members who could also support them, or have not put in effort to join communities that can support them. It is not just a money issue, but also one of physical and mental health. Holistically speaking, the high rents and property prices are a major reason why it is so difficult to save for retirement, and just looking at the benefit side of the story shows ignorance. Low interest rates are a main culprit and must be raised with urgency to take credit out of the market and deflate prices.


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