PENSION fund managers are keenly watching the progress of the Government's proposed old-age pension scheme. The debate hinges on whether the role of the welfare state is better left to employers and insurance companies or the Government. That Hong Kong needs some kind of support scheme for retired people is without question. It is estimated by 2011 the number of retired in Hong Kong will rise by more than 29 per cent and account for about 12 per cent of the community. That is more than twice as many retirees as in 1979. But only 35 per cent of the work force is covered by a retirement plan, which leaves a large and growing number of retirees in need of some form of retirement income. The Government is proposing a state-run old-age pension scheme called theCentral Provident Fund (CPF), which would give all retired people a pension for life. But many industry groups, including the Hong Kong Chamber of Commerce, are opposed to it. They favour privately run and privately funded plans. While supporting the growth and development of private and company-funded retirement schemes through the Occupational Retirement Schemes Ordinance, the Government has put forward a discussion paper outlining its plans for an old-age pension scheme. The proposed pension would give everyone of retirement age in Hong Kong a monthly retirement benefit of $2,100 at 1993 costs, adjusted for inflation. This represents an increase of 400 per cent from the current old-age allowance of $550 per month, although it is possible for retirees to claim up to $2,000 a month when other allowances such as for dependants are taken into consideration. It would be financed through a salaries tax, the details of which are currently being worked out by the actuary firm, Wyatt company. Most estimates put the tax level at six per cent which would be financed by current workers and would be paid out to people now retired. But sceptics say the tax rate could be higher. Schroders Asia director Richard Haw said the problem with the old-age pension scheme was the ageing population of Hong Kong could not sustain the scheme in the long run. ''As the proportion of retired people gets bigger and the proportion supporting them gets smaller, the salary tax needed to support the scheme must, inevitably, be higher than the rates now being suggested,'' he said. National Mutual general manager John Snelgrove said: ''The problem with the old-age pension scheme is that you get one generation paying the last generation's retirement benefits.'' In fact, one source close to the Government said the problem with privately run pension funds was they did not address the problem of people now retired and struggling to make ends meet. ''The old-age pension scheme would solve the problem of today's old rather than having to wait 20 or 30 years for private pension plans to kick in,'' he said. Connaught employee benefits consultant Charles Dunsford said the problem with many developed countries which provided pension schemes through the welfare state was there were fewer people to pay the costs because of an ageing population. ''Either the benefits are reduced or the tax is increased. Both are unappealing options,'' he said. The proposed old-age pension scheme represents a radical departure from the current system and is a break from the traditional laissez-faire culture in the territory. Not surprisingly, the proposal is meeting some stiff opposition from business groups which see it as an additional tax. ''A Central Provident Fund is not viable. The old-age pension scheme is not the answer,'' said Hong Kong Bank senior vice-president David Padgham. He favoured the current voluntary retirement scheme but urged the Government to allow tax allowances on contributions to private retirement schemes. Hong Kong Bank vice-president David Chang said the Government should offer favourable tax incentives for employee contributions to encourage employees to plan for their retirement. Currently, employers receive tax relief on contributions but employees do not. The fact that the proposed scheme would not be means tested is one area likely to come in for criticism. Anyone over the retirement age can collect it regardless of their need or income. Industry analysts expect public pressure will force the Government to water down the proposal to include means testing.