SCMP Debate: Should a means test be applied to old age allowance?
Plans for a HK$2,200 per month Old Age Living Allowance forthe elderly have divided the city due to the inclusion of a means test. Many lawmakers say the allowance, to be voted on by the Legislative Council's finance committee on Friday, should be available to all. We asked the welfare minister, lawmakers, campaigners and experts whether the means test should be scrapped and whether a universal pension was needed to cope with the city's ageing population.
Q1 Should a means test be applied to the new subsidy for the elderly?
Q2 Should the asset limit for the new subsidy be increased from HK$186,000? Should lawmakers support the proposal if the government does not make any concessions?
Q3 Is there a need for the government to study the creation of a universal retirement protection scheme?
Matthew Cheung Kin-chung
Secretary for labour and welfare
A1 The Old Age Living Allowance (OALA) aims to help alleviate poverty and supplement the living expenses of those aged 65 or above who need financial support. We need to know which applicants have financial needs and that is why we need them to declare their income and assets. We need to ensure our proposal is affordable in the long term. Our population is rapidly ageing. The number of people aged 65 or above will rise from about 980,000 at present to 2.56 million, 30 per cent of the population, by 2041, putting pressure on our welfare and medical systems. The labour force, and possibly the number of taxpayers, is expected to shrink after around 2020. This poses an immense challenge to the sustainability of our fiscal system. That is why we must be prudent and target limited resources to those who really need them. Our proposal will cost HK$6.2 billion in the first full year, a 14 per cent increase in the government's recurrent spending on welfare. If all those aged 70 or above receive the OALA, the additional expenditure will soar from HK$6.2 billion to almost HK$10 billion. If it is available to all those aged 65 or above, the increase will be a hefty HK$13.6 billion. With a fast growing elderly population, expenditure on OALA will naturally increase. We expect the additional payments will cost some HK$9.6 billion within 10 years. But if the OALA is granted to all senior citizens then the financial implications will be so great that it will crowd out other government spending (including on welfare). This underlines the importance of having an objective mechanism to identify those with financial need.
A2 The income and asset limits for OALA are identical to those for "fruit money" for those aged 65-69, and are well understood by elderly people. Relaxing the asset limit to any other level is bound to be arbitrary. We believe that keeping the same limit as "fruit money" is both reasonable and generous. Well over 400,000 elderly people will benefit. Actually, the asset limit of HK$186,000 for single elderly people applying for the OALA is more than four times that (HK$38,000) for single elderly people applying for CSSA. The OALA asset and income limits will be reviewed annually in line with the movement of the Social Security Assistance Index of Prices. The index so far indicates an increase of 3.4 per cent from last year. I sincerely hope that, for the benefit of elderly people in need, our lawmakers will approve the proposal.
A3 Hong Kong adopts a three-pillar model for retirement protection: the Mandatory Provident Fund, private savings and the non-contributory social security system (including CSSA, Old Age Allowance and Disability Allowance). Looking ahead, the chief secretary will chair a task force under the new Commission on Poverty to study Hong Kong's social security and retirement protection systems holistically. There are views that Hong Kong should introduce a universal retirement protection scheme. The huge financial implications aside, this is complex and controversial, in particular if it would require contributions by participants. Our community has not come to a consensus as to whether it should go down that route.
Director general, Oxfam Hong Kong
A1 The proposed Old Age Living Allowance has become a political issue and politics is always complicated. Oxfam Hong Kong takes a more straightforward view: we are against poverty and we want government to implement policies for the poor. We will support any fair and reasonable initiative that will improve the lives of those living in poverty. The government says the purpose of the allowance is to alleviate elderly poverty. If that is so, then we should not oppose it. Our principle is: poor people first. If the proposed allowance is to help the poor, then it should be regarded as a welfare initiative. As such, it should target those with a genuine need. Some form of means testing is, therefore, necessary. Accordingly, we have no objection to requiring people aged 70 or above to declare their income and assets to receive the allowance. Under the government's proposal, those who do not wish to declare their financial means can continue to receive the existing Old Age Allowance. The new allowance can help improve the lives of poor elderly people who are not recipients of CSSA
A2 The proposed monthly income limit and asset limit are the same as those aged between 65 and 70 who receive "fruit money". We can see valid reasons for reviewing the limits from time to time, for example, to keep up with inflation. However, the outcome of the proposal should not depend on political agreement on the asset limit. We believe the most important consideration is the needs of poor elderly people. The introduction of this new allowance should not be stalled just because the government and lawmakers disagree on a political point. The matter can be reviewed later. The allowance is a step in the right direction. It can help some elderly people avoid falling below the poverty line. They should be able to live in dignity and not be forced to suffer the stigma of relying on public assistance. We propose that the allowance be enhanced in future to enable elderly people maintain a minimum standard of living. In the longer run, a sustainable universal retirement protection scheme could be an alternative.
A3 We believe everyone should have a right to retirement protection. Elderly people who have contributed to economic development should not be left to fend for themselves. The Mandatory Provident Fund is meant to be a form of retirement protection, but it does not cover everyone and is not adequate. If we wish to introduce a universal retirement protection scheme, it should be a contributory scheme (as in Europe and the US) to ensure it is financially sustainable. The government, employers and employees, and self-employed people should all contribute to a common pool and everyone should receive a pension when they retire after reaching a certain age. The scheme should also cover women who are homemakers. Any such proposal will be complicated and controversial. If we wish to go down that route, the government should set up a broad-based task force to look into its feasibility. The new Commission on Poverty should be a good platform to initiate public discussion and oversee a study.
Chairman of the Labour Party
A1 Hong Kong's elders deserve a decent and better retirement. The proposed Old Age Living Allowance (OALA) is neither fish nor fowl. It is not retirement protection for all, since it is means-tested and quite a number of elders are excluded. Nor is the proposed level of allowance adequate to help needy elders, the stated policy intent of the new subsidy. If the government really wants to help needy elders, it should review CSSA to make sure all poor and needy elders are covered. Oxfam Hong Kong estimates that about 160,000 poor elders do not receive CSSA. We do not need another tier of welfare for elders. Changing the eligibility criteria for applying for CSSA by allowing elders who are living with their families to be individually assessed will immediately lift a lot of elders out of poverty. Mathew Cheung argues that without a means test the OALA is not fiscally sustainable. According to the latest population projection, the labour force is expected to shrink and the number of elders surge. There is no denying that population ageing will put heavy pressure on Hong Kong's welfare and medical systems. But the point is that retirement protection solely funded by tax revenue is not fiscally sustainable whether it is means-tested or not. Introducing a means test might defer the problem by several years, but the question remains unresolved. We need both immediate relief for elders and a partially pre-funded universal retirement-protection scheme as a long-term solution. The Labour Party put forward a proposal last year that the government should immediately raise the amount of the Old Age Allowance (OAA) to HK$2,000 a month and, at the same time, start the preparatory work for introducing a universal pension scheme by 2016. The additional costs incurred are one-off, and are estimated to be about HK$50 billion, only a small fraction of the needless sweeties handed out by the government in the past few years.
A2 The Labour Party opposes the means-tested OALA, and will not bargain with the government to raise the asset limit. It is a matter of principle. We want a universal pension scheme. Raising the amount of the OAA is supposed to be a transitional measure and the long-term solution should be a tripartite contributory pension scheme. A means test will punish elders who tried to save for retirement, and may push some to transfer assets to relatives or spend savings. Moreover, means-testing may also have a labelling effect, discouraging elders who resist being labelled welfare recipients from applying.
A3 The government should have a timetable and road map for a universal pension scheme. Unions and other non-governmental organisations have called for this since the 1970s. The longer we waste in waiting for the government's initiative, the less able we are to solve the ageing problem. Our proposal is a partially pre-funded universal pension with contributions from employers, employees and government. All elders aged 65 or above would be eligible for a retirement benefit of HK$3,000 a month. The earlier we implement the scheme, the earlier we can start saving for the future. It is time to act now, but not in a haphazard manner. We must act with a clear vision and a plan.
Honorary president, the Federation of Trade Unions
A1 A survey by the Council of Social Service shows that Hong Kong's overall poverty situation has improved since the introduction of the minimum wage. But the standard of living for elderly people has worsened. The poverty problem among the elderly people is very serious. The amount of old-age allowance is only HK$1,090 and that is seriously not enough. To cover basic expenses, an elderly person needs HK$3,100. A responsible government should do what it can to deal with the problem. The government has a reserve of about HK$2 trillion - it has all the capacity it needs. The present old-age allowance is only one third of what elderly people need. Even if that is increased to HK$2,200, they will still find it difficult to live. Thus, it is irresponsible that the government wants a means test. Of course, some people are worried that "If there is no means test, even Li Ka-shing can get the subsidy!" But can't Li Ka-shing also apply for "fruit money" (available to everyone over the age of 70)? The government says: "The HK$2,200 is a measure to help fight poverty, the 'fruit money' is a form of respect to the elderly!" But if this really is trying to fight poverty, why doesn't the government abolish the "bad boy certificate" (a requirement for children to say they can't or won't support their parents when applying for CSSA)?
A2 We support any suggestions that benefit elderly people. Take the HK$186,000 asset limit as an example. Many elderly people ask me if a person who has lived 70 years is "very rich" if they have HK$100,000 to HK$200,000 of savings. Does that mean that person is not in need? Let us remember, this is all the money they have. Does our government really think they will spend their money until they have HK$186,000 left and then apply for the new subsidy? They definitely will not. Elderly people who the government thinks do not need help will continue to collect cardboard and pick the rotten fruit in the market. Is that what supporters of the means test want? If the government does not make any amendments, should lawmakers vote for it? I would like to ask Secretary for Labour and Welfare Matthew Cheung Kin-chung whether, if the proposal is not passed in Legco, it will be amended and put to Legco again?
A3 We need to take precautions before it is too late to solve the problems poor elderly people are facing. To achieve that we need a universal pension scheme as soon as possible. Let us look at the so-called three pillars: personal savings and investment, the Mandatory Provident Fund and the government's subsidy. Which of them is reliable? Take savings; even if Hongkongers do not spend a dollar for decades, they still cannot pay off their mortgage because of sky-high property prices. Where do they get the money to invest? Then look at MPF. The Consumer Council says it's common for companies that manage MPF accounts to lose a lot of money, not to mention the high service charges. The companies lose money workers earn with their blood and sweat. By the time they retire, the money may even be even less than what they put in. As for the last pillar, the "fruit money", the Council of Social Service has already commented on it. Can these three pillars support a city with an ageing population? That will be difficult. That is why a universal pension scheme is the only solution.
Auyeung Kwun Tong
Organiser, the Alliance for Universal Pensions
A1 Recipients of the newly proposed old-age living allowance should not have to go through any forms of means test. First, means tests cause a "moral crisis" - people are "punished" for saving, whereas others will try to spend savings - and is thus against our social values. Second, HK$2,200 is inadequate to alleviate poverty, as many seniors would continue to struggle, relying on savings or work to maintain a basic standard of living. The government has never revealed any evidence that the current three-pillar retirement-protection system ("Elderly CSSA", the new subsidy and the Mandatory Provident Fund) can solve the issue of the ageing population. The alliance worries that once the three-pillar system collapses, the government will have to carry a far greater burden of expenditure, and by then the problem would fall on the shoulders of our taxpayers, or our next generation. Therefore, the government must act now to review the effectiveness of the three-pillar system, withdraw the means test in the short run, and implement a universal pension system in the long run, so that our entire society is sharing the responsibility to resolve pension issues.
A2 The alliance opposes any means test. The CSSA system implements such a test to assist elderly people in poverty, with 170,000 such cases, about half the total number of CSSA cases. But, still, one in every three elderly people in our society is in poverty. If Matthew Cheung truly believes in those who are in need, then he should cancel the so-called "bad son letter" (which the children of elderly people claiming the allowance must write, to say that they cannot or will not support their parents) and allow elderly people to apply for CSSA independently, rather than through their families. Thus the problem is not the asset limit; it is that the government did not face up to the issue of poverty for elders. The alliance believes that the rationale of "helping those in need" is not the right method to solve the elderly poverty and pension issues; otherwise, elderly people today would no longer have to work or resell paper scraps to support their basic living. Hence Legco members should vote down the proposal if the government does not promise to set up a committee on universal pensions and come up with a timetable and road map to implement a universal pension.
A3 Definitely. On the one hand, we often hear about how future governments will be unable to cope with the tremendous expenditure due to growing welfare expenses caused by the ageing population. On the other hand, the effectiveness of the MPF is far from satisfactory and has many loopholes; hence society is deeply concerned about a worsening poverty crisis. Therefore, in order to solve the problem of retirement protection, a universal pension system as a social insurance funded by a tripartite contribution system (from workers, employers and government) should be implemented without delay. However, the government is avoiding the public in its discussions about the implementation of a universal pension. For instance, the Central Policy Unit is known to have been conducting relevant studies for eight years, yet the think tank has failed to publish any reports or results. To this end, the government should establish an ad hoc committee to follow up on the topic of universal pension and launch a public consultation on a universal pension scheme.
Dr Law Chi-kwong
University of Hong Kong academic and member of the Preparatory Task Force on the Commission on Poverty
A1 If the question is "if we increase the amount of old-age allowance, should we introduce a means test", my answer is no. I believe a substantial portion of old people, a number of pressure groups and politicians see the proposal as an increase in Old Age Allowance (OAA) and thus are strongly against any means test. But we are not discussing whether OAA should be increased, and hardly anybody has openly asked to increase OAA from HK$1,090 to HK$2,200, not even after Leung Chun-ying spelt the proposal out clearly and specifically in his election platform with the same details proposed by the government. It is only after Leung, as chief executive, announced his proposal for this new allowance in July that people started arguing that there should be no means test. In practice, this request is the same as asking to increase the OAA. I disagree with such a request. I understand many people consider the OAA insufficient in supporting the retirement needs of elderly people and therefore the OAA should be increased substantially. While I agree that the OAA is not sufficient to support the needs of elderly people, OAA is not meant to provide retirement protection. I cannot agree that OAA should be increased substantially. We have the CSSA at present, which is meant to serve such a purpose, though most of us agree that the CSSA needs substantial revamping, or at least improvements, to help needy elderly people. We should not mix up OAA with retirement protection. If the question is "if Hong Kong has decided to introduce a universal pension scheme, and before that, the proposed new allowance is introduced as an interim measure, should it be means-tested", then I will probably agree that the scheme should not be means-tested. However, there is obviously no agreement within society in Hong Kong that we should introduniversal pension.
A2 uce a universal pension scheme, and therefore, we should not be treating this Old Age Living Allowance (OALA) scheme as a stepping stone to a Yes and no. Yes, HK$186,000 is very low. If we translate HK$186,000 into an annuity for a person aged 65 with an annual interest rate of three per cent, the monthly sum will be about HK$570, compared to the HK$2,200 new subsidy. Having said that, I will still say no. When we first implement the new allowance, the existing means test for those aged 65-69 applying for OAA should be used. At present about 30 per cent of those aged 65-69 receive OAA under this means test, and thus we can roughly estimate what percentage of those aged 70 or above will be eligible for and apply for OALA. If we raise the limit of HK$186,000 to, say, HK$300,000, no one will be able to tell what the likely take-up rate would be. The difference could cost billions of dollars. A prudent government, even if it does agree that the asset limit is too low, should not change it at the time of implementation. However, the level of the means test should always be subject to review.
A3 Answered above