Pension plan comes under new attack
THE Hong Kong General Chamber of Commerce has criticised the Government's proposed old-age pension scheme, saying it will be unnecessarily universal and a heavy financial burden on the Government and business community.
The chamber said the pension scheme would only exacerbate the situation by increasing costs at a time when rising costs are forcing businesses to consider other Southeast Asia centres.
The growing number of business organisations which now oppose the pension scheme include the Chinese General Chamber of Commerce, the Employers Federation of Hong Kong, the Chinese Manufacturers Association and the Federation of Hong Kong Industries.
Hong Kong General Chamber assistant director and chief economist Ian Perkin said businesses would face an additional three per cent impost directly and might come under pressure to pay the employee contribution or increase real wages to cover the contribution.
The Government proposed the pension scheme in October. The scheme would require employers and employees to contribute a percentage of an employee's monthly income to a pension fund.
The Government has suggested that the scheme could be a universal contributory scheme, providing an index-linked pension at 30 per cent of the median wage, or $2,100 a month.
This would cost about $13 billion in the first year - $3.3 billion from the current payments to the elderly and $10 billion from contributions from the workforce.
The old-age pension scheme is now the subject of a feasibility study by consultancy firm Wyatt Co (HK), which is expected to be released next month.
Mr Perkin said the chamber's own preliminary figures showed that such a programme would be expensive and would see the Government inject substantial subsidies after a few years of operation.
''While the Government's figures might balance in the first year - and perhaps for a couple more years after that - it would very quickly move into a deficit situation,'' he said.
''Without wishing to prejudge the issue, it would not be a surprise if the Wyatt study now under way found that the old-age pension scheme was only workable on the basis of much higher contribution rates, a bigger government subsidy, or by paying lower benefits.'' Mr Perkin said the chamber was concerned that the scheme was a hybrid, which confused welfare with financial provisions in retirement, a concept rejected by the Government's Working Group on Retirement Protection in 1992.
He said there was also concern that as a pay-as-you-go-scheme, the old-age pension scheme proposal would run counter to world trends leading away from universal old-age pensions, which were proving to be heavy financial burdens on Western governments.
''Contributions to the scheme would introduce a de facto payroll tax and enforcement of contributions could be problematic because eventual benefits are not contribution-related,'' Mr Perkin said.
''As a universal scheme, payments under the old-age pension scheme would be made to the many who do not need it. It would involve substantial income redistribution - high income earners to low income earners; contributors to non-contributors; and the working population to the aged.'' In a statement to the Government, the Chamber has recommended: The creation of a phased-programme, mandatory, private sector community-wide retirement protection scheme with the loopholes and flaws removed, or a promotion of the current Occupational Retirement Scheme.
The introduction of a universal, contributory, non-means-tested old-age pension scheme should be opposed, as should any attempt to introduce a Central Provident Fund.
The existing concept of a safety net for any retirement scheme should be retained and upgraded in the form of a means-tested, old-age allowances scheme subject to sensible residency qualifications, and should be fully funded out of general revenue.
The chamber and other employers' associations should be invited to participate in formulating the policy and details of such a scheme.