THE speech by Chief Secretary Anson Chan Fang On-sang at a meeting of the Tung Wah Group of Hospitals yesterday: IT has been a wet and relatively cool summer, but I am going to speak on a rather hot subject today, the old age pension scheme. This subject is of special interest to the work of the Tung Wah Group since so many of those under your care are elderly people. Like the rest of the community, the Government is deeply concerned about the well-being of the elderly. We have to put in place arrangements which will cope with the rising numbers of old and retired people. In 1994, we have 560,000 people aged 65 and over. In 2000, we will have almost 700,000 aged 65 and over. Obviously, Hong Kong cannot delay much longer a firm and clear decision on how best to provide financial peace of mind for men and women when they retire. For this reason, the Government announced in December last year that we intended to implement an old age pension scheme. But we explained that, before making a final decision, we would conduct a feasibility study on the financial and administrative problems involved. And we would also want to consult the public and to hold discussions with the Chinese Government. Since making this announcement, the Government has wasted no time. We immediately appointed the Wyatt Company to carry out the feasibility study. Just over a month ago, we published a consultation document, based on their expert report. We then embarked on a full-scale consultation exercise, which will continue until the end of October. Our plan is to reach a decision by the end of the year. This decision will reflect the views expressed by all sectors of the community, and very importantly, the outcome of our discussions with the Chinese Government. I am very encouraged by extensive debate which has developed on the question of how Hong Kong should provide for the financial needs of its elderly members. The debate so far demonstrates that we have a community which is both caring and pragmatic, and which is sophisticated enough to grasp the complex issues involved. I am even more encouraged by the way in which public opinion has responded. The news media have commissioned four independent opinion polls since the consultation document was published. These show an overall approval rate of around 70 per cent for the Government's proposals. And supporters of the proposals outnumber opponents by impressively large margins. These opinion polls reflect three clear convictions among our community: Firstly, that Hong Kong should provide financial security for our elderly population; Secondly, that at our stage of affluence, we should not leave a large group of elderly people behind the rest of the community or expose them to the risk of poverty; Finally, that the community as a whole is willing to pay a reasonable price to achieve these goals. Although public opinion already recognises the merits of the Government's proposals, we have also heard negative feedback. I should like to respond to some of our critics. I also want to lay to rest some misunderstandings. Let me start with the complaint that the Government's proposals are flawed because they mix up welfare with retirement protection. I want to stress two fundamental principles of Hong Kong life. Firstly, our elderly men or women ought to be free from the threat of poverty after the end of their working lives. They need a basic income which is both secure and reasonable enough to provide them with an acceptable quality of life. Secondly, the elderly men and women in our community today have contributed to the creation of our successful, affluent Hong Kong, whether they worked in a factory or at the family stove. They should be able to look to the community to provide a financially secure old age. The great advantage of the Government's proposals for an old age pension scheme is that it meets the community's obligations to provide a basic income for the elderly as a whole. It does not exclude those whose careers as employees have been interrupted, for example by raising families or caring for infirm or disabled relatives. It does not discriminate against the less privileged members of the workforce, for example the casual labourer or the unskilled worker. The Government's proposals also offer the simplest solution to the problem. After all, if we agreed with our critics and excluded all but fully paid-up employees from the pension scheme, we would have to set up a parallel but separate scheme to take care of the substantial proportion of the population who are outside the workforce, as well as of the existing elderly population who have never had an opportunity to contribute to the new pension scheme. I do not believe the community would agree to the creation of two parallel schemes, both of which are designed to provide financial security in old age, but both of which are to be kept separate, simply to draw an artificial distinction between those who are formerly part of the workforce and the rest of the elderly population. Another complaint is that we ought to rely more on the various retirement benefits which good employers offer their workforce. Let me emphasise [that] the Government strongly believes that the retirement schemes offered by good employers will continue to have an important contribution to make for two reasons. Firstly, the contributions rate for the proposed pension scheme has been set very low. This means that both employers and employees will still be in a position to contribute to more generous arrangements which are employment-related. Secondly, the Government's proposals will provide only a minimum level of financial security. Hence, the employment-related schemes will provide valuable additional resources in retirement. They will help employees to maintain their customary standards of living even after their working careers are over. But we must accept frankly the fact we cannot leave the financial security of the elderly to these employment-related schemes. Unlike the Government's proposals, these schemes rarely offer regular monthly benefits which are inflation-proof. Instead, these employment-related schemes usually provide a lump sum on retirement. It takes skilful investment management to provide financial security into old age. And let me repeat, the employment-related schemes will do nothing to assist three important groups in the elderly population: Those who have already retired; Those who will retire in the future before they have been members of such schemes long enough to accumulate the maximum benefits; and Those who have not been part of the workforce. A third complaint is that the Hong Kong Government is trying to establish a ''welfare state''. The facts tell a very different story. At present, elderly men and women can qualify for social security benefits without having paid any form of contribution. At present, social security benefits are financed entirely by the tax payer and less than half the workforce pays any salaries tax. In future, the entire work\\ force will share the cost of providing the pension benefits. The reality is that if anything, the Government is moving away from the old welfare-style financial help for the elderly to a scheme which is more in line with our present level of economic development and our current social aspirations. The Government's proposals recognise that the average employee's earnings are now sufficient to allow at least a modest contribution to the financial needs of old age. They respect the dignity of our elderly men and women and their right to financial security rather than just to welfare entitlements. They respond to the community's insistence that old age should not be burdened by financial insecurity. I want now to turn to some of the criticisms which have come from business and professional groups. One complaint is about the proposed contribution from employers. The suggestion has been made that pension benefits should be financed out of increased taxes, the fiscal reserves and so on. Let us again look at the facts. A contribution of 1.5 per cent represents a very minimal levy on the employers. Without this contribution, very sharp increases in direct taxes would be required. Both profits and salaries tax would have to rise by four per cent. If pensions were to be funded out of taxes, the scheme would be open-ended. There would be no cast-iron link between the level of contributions received. In this context, the merits of the Government's proposals are convincing: Hong Kong's traditional tax structure will remain unchanged, low and simple. Pensions will be subject to a strict, self regulating discipline. They could only be raised by persuading the community to pay higher contributions. Our proposals also include other safeguards to prevent pension benefits from becoming an excessive burden on our financial resources. The level of benefits will be set at $2,300 a month, to be increased regularly in line with inflation. However, the level of benefits will not be improved automatically to match increases in average wages. Hence, the total cost of the pension scheme could be kept below two per cent of GDP. This is obviously no threat to our long-term competitiveness on world markets. Another complaint is that the Government is somehow trying to evade its responsibilities towards the elderly, and is trying to shift this burden to employers and the workforce. It is certainly true that the pension scheme is to be financed to a considerable extent by contributions from employers and employees. Indeed, it is vital for the scheme's self-discipline not to be funded entirely out of tax receipts. Nevertheless, the Government has accepted its proper obligations in full. Firstly, as an employer, the Government will not exempt itself from contributing for its 180,000 staff and on behalf of the subvented sector. Secondly, on the welfare side, the Government will plough back $3.6 billion, as a start, into the scheme the welfare benefits which would otherwise have been paid out to its elderly social security clients. In addition, the Government will inject a capital contribution of $10 billion into the pension scheme. The net effect of the Government's involvement will be that during the entire projection period, for every $3 paid out as pension benefits, $1 will have been paid in by the Government. There is also the complaint that the scheme is unfair as even the very rich will benefit. This is not true. What we have proposed is that for those who have contributed, they ought to be entitled to their pensions as a matter of right. But for those who for various reasons have not contributed to the scheme, they should be subject to an assets declaration which would screen out the rich. We have suggested a $2 million limit, but we would be interested to hear the community's view on an appropriate level. Let me sum up how I see the position. Although we still have 10weeks left for public consultation, the Government's proposals have already won extensive community endorsement. Contrary to the critics' complaints, the Government's proposals: Will not affect our economic competitiveness. Will not create a ''welfare state''. Instead, they will provide a basic income for old age, funded strictly by contributions instead of solely by the taxpayer. The Government's proposals will offer a dignified form of financial security for all our elderly population, at a very affordable price to the community. Meet the community's needs in providing a financially secure old age. But we are not complacent. We recognise that we have much to do in refining our proposals in the light of public comments and criticisms. We also want to allay misunderstandings and misgivings. We will continue to listen carefully to the views of all sectors of the community. It is important for the successful implementation of the proposed pension scheme that Hong Kong as a whole shares our confidence that we have found the appropriate solution for the financial problems of old age.