• Thu
  • Sep 18, 2014
  • Updated: 6:55am
NewsHong Kong

New tax of up to 2.5pc proposed to fund HK$3,000 a month pension for all Hongkongers

Official suggestion to Commission on Poverty is for a universal system with no means test

PUBLISHED : Wednesday, 20 August, 2014, 7:07pm
UPDATED : Thursday, 21 August, 2014, 9:21am

Every Hongkonger over 65 - rich or poor - would get a pension of HK$3,000 a month without a means test under a scheme put forward yesterday.

A long-awaited government-commissioned study said the pension should be funded partly by contributions ranging from 1 to 2.5 per cent of employees' salaries, paid by both employers and workers.

The government would need to inject HK$50 billion but an additional profits tax - as groups such as the Federation of Trade Unions proposed - would not be required.

The study was headed by University of Hong Kong academic Nelson Chow Wing-sun. "If the government can make a decision by 2017 [on whether to introduce the scheme], then I would say that my effort on the study had not been wasted," Chow said after a presentation to the Commission on Poverty yesterday.

Under the suggested "payroll old age tax", those earning less than HK$10,000 a month and their employers would contribute 1 per cent of the worker's salary.

For those paid less than HK$6,500 a month, employers would contribute 1 per cent and workers would be exempted.

For salaries of HK$10,000 to HK$20,000, both would pay 1.5 per cent and for HK$20,000 to HK$120,000 the amount would be 2.5 per cent.

READ: Six ways Hong Kong could fund a universal pension scheme

But the proposal has some limitations.

The pension pool is expected to go into annual deficit from 2026. By 2041 only about HK$13.5 billion would be left.

The influential Federation of Hong Kong Industries said Chow's proposal would be a "very huge burden" for employers to bear.

Chief Secretary Carrie Lam Cheng Yuet-ngor, who chairs the commission, said it needed more time to study the report.

Lam said she "could not commit the commission to any timetable for the time being except to assure you that the commission will … convene another meeting in due course".

Federation of Hong Kong Industries chairman Stanley Lau Chin-ho said employers were already required to make MPF contributions.

"Why do we need to make another contribution?" he asked. "Without a means test, [the billionaire] Li Ka-shing will also get the pension. Does he need it?"

Chow's report also included an analysis of five other proposals including those from the Alliance for Universal Pensions and the Federation of Trade Unions.

The report said the alliance's proposal would record a deficit from 2028 but still have HK$127 billion left by 2041.

The federation's proposal would record a deficit in 2017 and the money would be used up by 2030.

The reports both suggested an additional profits tax and transferring part of the Mandatory Provident Fund contributions to the pension scheme.

"A concern is the impact on public finance," Lam said. "Of the four proposals that do not have a means test, there will be sustainability problems by 2041. The money coming into the scheme will be less than the money to be given away."

Of the two proposals that did require a means test, the annual additional average expenditure for the government would be HK$8.1 billion and HK$15.3 billion.

"That is obviously a huge burden for public finance," Lam said.

Commission member Frederick Fung Kin-kee, of the Association for Democracy and People's Livelihood, said there should be an additional profits tax. "We have been talking about retirement protection for 30 years. Now the government has huge surplus … if it is not introduced now, it may be impossible to do so in the future," he said.

FTU lawmaker Tang Ka-piu said he welcomed any proposals as long as the elderly received HK$3,000 a month.

But he believed an additional profits tax would be more sustainable.

New People's Party chairwoman Regina Ip Lau Suk-yee said the best option would be one under which the government met the expense, without needing to adjust the tax system.



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This article is now closed to comments

Hong Kong was 30 years too late instituting an MPF, which should anyway have been government run instead of being left to the rapacious charges of tycoon owned funds.
I'm in favour of a decent pension, but remember that most recipients will be people who never paid a penny of tax or contributions to such a scheme.
To some, the $3,000 payment could be seen as an insult. Not only that a means test is necessary, there has to be some minimum eligibility requirements, such as residency requirement, that must be satisfied in order to be eligible. Realistically, I can see a lot of push back from the employer sector, and given HKSAR government's propensity to succumb to the typcoons' whinings, I doubt if we would go anywhere anytime soon with this proposal. It's about time for Hong Kong to introduce a multi-tiered income tax structure, considering the incredibly big income gap between the rich and the low income folks.
Project this a little further and accurately match the scheme with the immigration policies of HK, i.e. if we foresee HK's local population growth is dwindling possibly dippling below zero, in 10~20 years' time the immigration policy of HKSAR will be net import. The picture of HK$3k or 5K will be modified instantly.
Corporations should contribute a few percent of the dividends, civil servants' contribution should have different treatment because of their existing pensions. Then decide what body to manage the money because the MPF management is no goer.
Don't raise this as a new salary tax.
Take from the rich middle class, Take much more from the rich tycoons, this is logical, ethical and must be done. Taxes are what we pay for a civilised society.
I feel relief when I see the ; elderly and poor being helped.
But I derive great pleasure when I see tycoons, big business and the General Chamber of Commerce start whining and screeching like a bitxx; when it comes to this universal pension scheme.
First of all, 3000HKD is far from enough and not to say effective way of alleviating poverty. And I agree with John Doe that this will open the door for increasing tax rate every now and then. All rate-based solutions will always end up with monotonic upward revisions, VAT, income tax, blah, blah. Most of all, I really question their REAL effectiveness at the end of day.
Shifting $$ left pocket to right pocket has minimal effectiveness. The most direction solution is for HK to emulate Singapore to come out with a sovereign fund that takes calculated risks to generate above than average returns and re-distribute that to the poor. For that, we need to be adopt a pro-risk attitude and stop thinking naively that a simple resource re-distribution problem can resolve the problem. Btw, I am not saying that 3 grand is not helpful; i am saying it is a short sighted solution with minimal effectiveness.
$3,000 is not really enough to live on if you are one of the elderly poor. It would be better to pay a larger amount, says $8,000 per month, but only to those who pass a means-test. For those with some assets, but no substantial income, they can be paid on a sliding scale depending on how much assets/income they have. Yes, means-testing can be abused by unscrupulous people, such as gifting away all their assets prior to retirement, but you can minimize the risk by having look-back provisions going back say, 10-15 years. Means-testing is one way to make sure the money goes to the people who really need it.
As good as your idea sounds, I think it'll be a little too complicated to implement for our 9:30am to 5pm Government.
As long as they continue to get their outsized pay packets, I am pretty sure that most workers in that Admiralty building doesn't care whether the elderly starves to death.
While you're at it, maybe start doing performance and pay reviews based on merit system in the government, I think you'll find enough money to fund the pension scheme just by cutting the staff who aren't doing even their 9:30 to 5 work.
It's not the low to mid pay staff, it's the higher pay managerial/directorate level civil servants, who get higher percentage raise on top of a higher base pay, yet not doing anything meaningful or taking any real responsibility other than empire building or turf protection.
OK good plan but is 3k really enough? Whatever it is, then let's reduce civil servant's pensions by the same amount so Joe Public isn't paying them twice over.




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