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In the 2013 Policy Address, the Chief Executive stressed that retirement protection was a recurrent theme relating to the problem of poverty in society. In March 2013, the Commission on Poverty (CoP) commissioned a consultancy team at the University of Hong Kong led by Professor Nelson Chow, who specializes in social security and social welfare. Chow's brief was to conduct a study on the future development of retirement protection. Recently, a research report was submitted to the CoP for discussion. This was also published on the internet for public reference.

As an expert who shows compassion for vulnerable groups in society, Chow is highly respected. He was the right choice for the role of chief consultant studying universal retirement protection. The central proposal of the research report is to establish a flat-rate retirement allowance. This will ensure elderly people over the age of 65 have adequate financial support - under a non-means tested system of superannuation.

Chow also raised a crucial issue - How will this be funded? Will it be from government resources, a superannuation contribution scheme or from the MPF (Mandatory Provident Fund) scheme? According to Chow it is inevitable that society will have to contribute more. "In the end, Hong Kong people will have to decide whether they are willing to pay for this. If people are not willing to pay, let's not discuss this anymore - let's not waste our time; I don't want to do these studies anymore," Chow said emphatically during a recent interview. In this regard, I totally agree with him.

The universal pension system suggested in the report is aimed at replacing the existing Old Age Living Allowance and Old Age Allowance (i.e. "fruit money"). All people over 65 years old will be eligible for these payments. It will impose no wealth based restrictions. It will provide a greater amount than the existing allowances. But the complexities of implementing this are unprecedented. The most challenging part is obtaining enough capital to fund these payments. Society will have to reach a consensus on this. Otherwise, all the research and discussion on the issue over the years has been pointless.

Chow developed the idea of three sources of contribution to guarantee the stability of funds: the government, employers and employees. Above all, the government would need to inject a one-off contribution of HK$50 billion into the pension fund as a capital base and take responsibility for paying half of the pension. As for the other half, he advocates a "payroll old-age tax", which would function in a similar way as the MPF scheme. This would be payable by both employers and employees at certain rates according to salary levels.

However, due to the aging population, new projections show that the pension fund is highly likely to be in deficit from 2026 onwards and that by 2041, as little as HK$13.5 billion would remain in the fund.

We should also remember that the proposed HK$3,000 monthly allowance will definitely have to be raised due to inflation. As a consequence, this deficit will probably appear earlier and become larger. By which time, the government will be forced to increase employer and employee contributions. But will the public accept this?

The debate over a universal pension system first surfaced almost two decades ago. The city's failure to implement the scheme was mainly because it was almost impossible to reach consensus on how to fund it. As far as I'm concerned, the biggest questions vital to implementation of a universal retirement protection scheme are:

Firstly, necessity. Will it be a waste of resources if society supports the elderly regardless of their economic status? According to a survey by the University of Hong Kong, last year, about 732,000 Hong Kong people can be classified as millionaires. These are people who possess current assets in excess of HK$1 million. This tranche of society, which comprises 10 percent of Hong Kong's population do not really need that monthly HK$3,000 from the age of 65. Why don't we spare the money for those who are really in need?

The second is fairness. The "payroll old-age tax" requires tax-payers to pay according to their level of income. This means that regardless of individual contribution, everyone gets a flat-rate payment of HK$3,000 from the age of 65. Clearly not everyone is generous enough to be prepared to make financial contributions to help fund the retirement of other people.

So the government certainly has to act prudently in considering the universal retirement protection scheme.

The author is vice-president of the Chinese Manufacturers' Association of Hong Kong.

(HK Edition 09/24/2014 page10)