Lose-lose situation on Hong Kong pension options: face much higher taxes or force elderly means-testing

Universal scheme would incur sky-high costs and lead to higher taxes, while alternative for those most in need would see elderly means-tested

PUBLISHED : Wednesday, 23 December, 2015, 3:23am
UPDATED : Wednesday, 23 December, 2015, 11:02am

Hongkongers have two extreme options to choose from if the city is to have a proper pension scheme: one that is universal and covers all retirees but will cost a fortune and require higher taxes; and the other catering only to those in need, but subject to a means test that will shut out most elderly citizens.

Chief Secretary Carrie Lam Cheng Yuet-ngor yesterday launched a six-month public consultation exercise on the highly contentious issue, following up on work of the Commission on Poverty, which she headed.

VOTE NOW: Would you rather pay higher taxes, or cater only to the poorest citizens when it comes to Hong Kong’s pension scheme?

“Even if there is clear consensus among the public, to have anything concrete, delivering the money into the hands of the elderly would be impossible to achieve [within this administration’s tenure],” said Lam.

“If the public overwhelmingly say that they don’t mind the tax hikes in order to pay for the ‘regardless of rich or poor’ option, a responsible government will still have to respond, but we also need to be responsible and let the public know the high expenses.”

The non-universal option, catering to “those with financial needs”, would be much cheaper. Elderly people with assets below HK$80,000 and monthly income capped at HK$7,340 would get a monthly allowance of HK$3,230. For a couple, assets cannot exceed HK$125,000 and their monthly income limit is HK$11,830.

Only about 250,000 among 1.12 million elderly would be eligible today. By 2064, when the elderly population is projected to reach 3.58 million, only 600,000 – around 23 per cent – would be eligible. Total elderly welfare expenditure that year would hit HK$55.8 billion.

The universal option, “regardless of rich or poor”, would benefit all elderly people to the tune of HK$3,230 a month. But, according to the government, it would mean an additional HK$22.6 billion in welfare expenditure, and HK$56.3 billion extra for 2.58 million elderly by 2064.

Total elderly welfare expenditure would be HK$106.1 billion by 2064. But statistics show that if Hong Kong sticks to its current retirement policies, total elderly welfare expenditure will reach HK$49.5 billion by 2064.

To cover the expenses over the next 50 years, the universal pension plan would require a 4.2 per cent increase in profits tax , or an 8.3 per cent increase in salaries tax, overturning Hong Kong’s low tax regime which is a cornerstone of the local economy.

READ MORE: Retirement protection a human right, not just a fight against poverty in Hong Kong, says seniors

Other options to foot the bill include introducting a goods and services tax of 4.5 per cent.

While Lam expressed reservation about the universal pension option, she denied that the government was scaremongering to ensure the public would reject it.

The government based its “regardless of rich or poor” option on a study it commissioned, led by University of Hong Kong academic Nelson Chow Wing-sun.

A disappointed Chow yesterday criticised the government for presenting his proposal in such a way that it appeared to put the public purse in danger.

“The only reason why the government did so is that it does not want people to support the universal scheme,” Chow said.

READ MORE: Hong Kong government adviser on pension plan accuses officials of treating him unfairly by stoking fears of higher taxes

Both the labour and business sectors gave the thumbs-down to the consultation proposals, with Labour Party lawmaker Lee Cheuk-yan noting that very few people would benefit under the non-universal plan.

Stanley Lau Chin-ho, honorary president of the Federation of Hong Kong Industries,was against both options in the consultation because of the tax implications.

Chua Hoi-wai, chief executive of the Council of Social Service, said the threshold of the non-universal proposal was set too high.