Thursday, April 18, 2013, 08:36

A proposal for a universal pension

By Joseph Li


A proposal for a universal pension

Professor Nelson Chow suggests a new pension scheme to supersede other welfare payments and save a great deal of administrative work. (Edmond Tang / China Daily)

 A proposal for a universal pension

 Senior citizens are afraid to use up their savings in case they need the money for medical or burial expenses.

There is clamoring, loud and drawn-out, over a long time for introduction of a universal retirement protection scheme in Hong Kong. Following the relaunch of the Commission on Poverty in October 2012, Chief Secretary for Administration Carrie Lam Cheng Yuet-ngor, who chairs the commission, appointed Nelson Chow Wing-sun, chair-professor of social work and social administration at the University of Hong Kong, to research retirement protection plans suitable for Hong Kong.

In an exclusive interview with China Daily, Chow unveils his proposal, calling for a HK$4,000 monthly pension for people 65 and above. The plan is not a ‘free lunch.” Employers and employees would contribute around 2 percent each, and the government would be responsible for half the fund.

Chow believes the tripartite contributions are fair, sustainable, less controversial and will be acceptable to society.

He will submit his proposal, together with those from other organizations, to the government at the end of 2013. He believes the Commission on Poverty will take about a year to discuss the subject and select one or two viable models before the government opens public consultation on the matter.

Chow is optimistic that a universal pension could be introduced by 2015 or 2016, but not before. He says the legislative framework for the scheme, at least, should be passed within the tenure of the current government.  .

Chow says he feels certain the administration is sincere in its determination to move ahead with the pension proposal, and he has high praise for Chief Executive  Leung Chun-ying for providing the thrust to get it done. “The previous government was rather lukewarm,” he commented. “He (Leung) has read our earlier research. Once he assumed office and found the plan is financially viable, he decided to go ahead.”

Chow also cites the example of Macao, which provides a basic pension to the elderly retirees.

According to the World Bank, pensions are a three-pillar system. In the Hong Kong context, the three pillars are: the social security system provided by the government, the Mandatory Provident Fund (MPF) and personal savings.

Three-tier system

At present, the government offers the Old Age Allowance (OAA) and Old Age Living Allowance (OALA). Those who are needy may apply for the Comprehensive Social Security Allowance (CSSA).

On average, a retiree receives about HK$220,000 in MPF benefits. In Chow’s view, such amount is not large because monthly contributions are small and the scheme has been operating for only a short time. It is also significant that the MPF covers only working people. Housewives and others who are not employed are not covered by the MPF.

Elderly people with significant assets or savings may be ineligible for the OALA and CSSA. People in that situation must rely solely on the OAA but the payment of $1,100 is hardly enough to provide for basic necessities.

Even senior citizens with over HK$200,000 in savings are afraid to use up their savings, in case they need the money for medical or burial expenses – recognizing that the price of a columbarium niche alone is well over HK$100,000.

“The focus of our research is whether pillar one, such as the OAA and CSSA, is sustainable if it is supported solely by the government and how big the government’s financial commitment is,” Chow disclosed. “With help of actuaries, our research will comprise scenarios of 10 years, 20 years and 30 years from now, with regard to such factors as  economic growth, government expenditure, elderly population and changes in working population.”

Although civilian organizations and political parties are urging for a universal retirement protection scheme, Chow understands they are more or less talking about a small pension that makes the elderly feel secure of their basic living.

“I propose a monthly pension of HK$4,000 for all people reaching 65, regardless of whether they have assets, have had jobs before or how much they earn. This amount is reasonable because if this is ‘universal’, it cannot be too big.

“Given that there are nearly 1 million elderly aged 65 or above, the annual expenditure will be HK$48 billion, with the government bearing half of it, while employers and employees each contribute about 2 percent. As the government now pays about HK$23 billion on all types of welfare payments, it will not spend much more than now. It is a more financially viable proposal. And with the government making such clear and firm commitment, nobody can say the government is iron-hearted.”

And if this new pension is introduced, he explained, it will supersede other welfare payments and save a great deal of administrative work.

HK$4,000 for basic living

Chow believes the HK$4,000 can support the basic living for the elderly, while retirees who have the additional retirement benefits and personal savings will feel more at ease. Though HK$4,000 may be small for a person who earns HK$50,000 before retirement, it will be good for a worker who earns the minimum wage of about HK$8,000 per month.

Chow is using the age criteria as eligibility of this new pension to eliminate means tests and other administrative procedures. “Even (Hong Kong’ number one tycoon) Li Ka-shing is eligible,” he mused, “but it’s up to him to apply or not.”

He, however, disagrees with suggestions of a HK$50 billion seed fund and the application of government reserves to finance the pension proposal. He also thinks it is inappropriate to transfer funds from the MPF to the new pension scheme because the MPF is a personal benefit that should not be put into a pension pool.

The professor emphasizes that the pension plan he proposes is fair and financially sustainable, and he is confident it will more likely be accepted by society. On the other hand, he believes it would become controversial if the government or business sector alone is asked to support the scheme.

He stresses that the universal pension is following on the winds of change. Employers are resisting in the same way they opposed the minimum wage a few years ago, but they cannot escape it.

Chow suggests a trade-off system by imposing a ceiling of 7 percent on the aggregate contributions to ease the financial burden on employers. In other words, if the contribution for the pension increased by 1 percent, the MPF contribution would be reduced 1 percent accordingly.

“When there is a cap, the business sector will feel more comfortable, without fearing that their part of the contribution will rise endlessly as in foreign countries,” he commented.

The working people are among the three parties contributing to the pension, yet they cannot enjoy the immediate benefits. In his view, the government should instill the sense of good citizenship in the working class through civic education.

“The younger working people should realize that although they cannot reap the benefits instantly, they will obtain the pension when they get old,” the professor explained.

“To ease the burden of the middle- and lower-income groups, the government can perhaps exempt earners below HK$8,000 per month or charge a higher rate on people earning over HK$50,000 per month.”


Nelson Chow Wing-sun is the chair-professor of the Department of Social Work and Social Administration at the University of Hong Kong. A well-known and highly respected academic in the field of social work, he is hailed the ‘Godfather’ of social welfare in Hong Kong. Over the years, he has held a number of posts in public service, written numerous works and undertaken research on social welfare-related issues. The major posts he had held included: member of the Advisory Committee on Broad-based Tax and the Equal Opportunities Commission. He was also chairman of the Mandatory Provident Fund Advisory Committee, member of the previous Commission on Poverty and chairman of the Community Care Fund’s Social Welfare Committee.

 A proposal for a universal pension

 Chief Secretary for Administration Carrie Lam Cheng Yuet-ngor visits a low-income family with social welfare officials to find out their needs.

‘New Generational Poor’ merit special assistance

Professor Nelson Chow comments that reinstatement of the Commission on Poverty to help the needy and to define a poverty line to measure the effectiveness of poverty-amelioration programs is moving in the right direction.

The scholar and former member of the commission notes, however, that things have changed. The government, Chow contends, needs to adjust its service targets to address a new “critical mass” among the population, which he calls the “New Generational Poor”.

This group comprises over a million people who enjoy little or no government financial support, see bleak prospects for the future, and are heatedly dissatisfied with the government. Chow believes the government should assist these people to ease their feelings of anger and disenfranchisement.

Chow recalls that when the Commission on Poverty was first established in 2005, the government had just managed to achieve a balanced budget after a couple of years in the red.

“The government made it very clear to us at that time that poverty alleviation projects involving recurrent expenditures were out of the question. Special funds were set up instead to fight poverty,” he told China Daily.

Since then, the social and economic environments have changed considerably, he observed.

“With the introduction of the statutory minimum wage, work incentive transport subsidy and the Old Age Living Allowance, I can say the standard of living of low-income people has improved. There aren’t very many people living in poverty. Still the Community Care Fund can take care of the neediest people,” he said.

“What I worry about most are people who earn between HK$10,000 and HK$20,000 per month. They are people who have the greatest fury. They enjoy little or no government welfare, cannot afford to buy their own homes and are ineligible for public housing because their household income exceeds the income limit.

“Based on the 2011 statistics, there are about 1.03 million people who belong to this class. About half of them are under 35, while 70 percent have post-secondary education. They have been working for eight to 10 years, yet their monthly income languishes between HK$10,000 and HK$20,000. Their prospects for promotion on the job are slim and they see little hope for the future.

“Since these people have the greatest fury and are discontented with the government, they take part in many social movements. The government must pay attention to this and modify the poverty-alleviation targets in order to assist these people,” he concluded.