Oct Wong Yu Cheung Department of Social Work, The Chinese University of Hong Kong

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1 Oct 2013 Wong Yu Cheung Department of Social Work, The Chinese University of Hong Kong

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4 Public housing Old tenement buildings Private estates Facts about elderly in Hong Kong 77.3 % not born in HK 31.7% with no schooling or only pre-primary education in 2011 (42.2 in 2001) 28.2% households in HK had at least 1 older person 62.4% married 51.2% lived with children 23.6% lived with spouse only 12.7% lived alone 8.6% lived in institution 38.6% lived in public housing (30.1% among general population) Source: 2011 Census Thematic Study: Elderly

5 Poverty rate 2012, post transfer 43.5% pretransfer

6 Ageing population

7 Dependency ratio ( ) Unit: 000 persons Age , , or above , , , ,558 All ages 7, , , , ,469 Elderly dependency ratio Note: Figures included domestic helpers, around 200,000 today (C&SD, 2012)

8 Existing System 0 Pillar Means-tested social security (16.2% of all 65 or above, average $4,687 a month including housing, replacement: 36%, without housing: 24%) Non-means-tested Old Age Allowance (OAA, 65/+, 53.1%, 1,135 per month) Disability Allowance ($1,450; 65/+: 6.1%) New: Old Age Living Allowance (OALA), means-tested: 65/+ 40%, $2,200 per month, % on OAA thus reduced) An older person can take only one of them

9 2013/14 65 歲或以上長者 ( 總人數為 萬 ) 每月金額 ( 港幣 ) 預計領取人數 百份比 綜援 164, % 3,500 * 元 公共福利金 長生津 407, % 2,200 元 生果金 ** 152, % 1,135 元 傷殘津貼 65, % 1,450/2,900 ** 元

10 1 st pillar [None, except civil servants recruited before 2000] 2 nd pillar Mandatory Provident Fund (Privately managed, 19 trustees/ 41 schemes, covering most employees/ selfemployed, NAV: $455.3 b Occupational schemes under (ORSO) NAV: 261.5b Mostly non-government public service workers (teachers/ social workers recruited before 2001)

11 3 rd Pillar: Voluntary saving into MPF, and other trust funds, insurance/ annuity products 4 th Pillar: Family transfer, Medical services, low-cost public rental housing Limitation of the existing system: MPF little investment knowledge; take time to mature; not enough for low-income earners Social Security: Stigmatization + require children to declare not taking care of their parents

12 Projection of the existing system Amount of existing system CSSA & OAA & OALA ($m) 21,532 30,492 45,733 54,712 Percentage of GDP ($ billion in 2013/14) Percentage of recurrent government spending ($308.2 billion in 2013/14) month assuming 95% take up rate ($m) 46,439 66,156 98, ,645 Percentage of GDP if universal pension ($4,000 a month) was implemented Percentage of recurrent government spending if universal pension was implemented

13 Major proposals for retirement projection Mostly non-means-tested PAYG universal flat-amount Either contribution on-top of MPF Or replacing some MPF contribution Means-tested system

14 Professional Commons Proposal Universal benefit for all 65/+ including non-contributors Additional 2.5% contribution each employers and employees Floor (same as MPF) and ceilings (higher than MPF) applied Others covered by government Suppose benefit = $4,000 per month The total additional resources needed in 2013 would be $24.9 billion over the existing system (fully covered by new contributions) The additional amount would be $61.3 billion in 2041 Total government expenditure 86.3 billion (4% GDP) in 2041 if no real GDP growth.

15 Alliance for Universal Pension (AUP) s Proposal Universal benefit for all 65/+ including non-contributors Diverting half of the MPF contribution (i.e. 2.5% each from employers and employees) Additional 1.9% from business making $10 million profit Suppose benefit = $4,000 per month The additional spending is similar to Professional Commons proposal 2041 would be $28.4billion in 2041 at 2013 prices. The total government spending required at 2041 would be $83.1billion (3.9% of GDP)

16 Public Pension Fund A very different approach: mainly to tackle insufficient lumpsum from MPF at retirement. Majority idea: Converting accrued benefits in MPF account into annuity + top-up from government for low-income earners on sliding scale Voluntary placing all MPF accrued benefits (mandatory component) into a public pension fund, retirees will receive an annuity plus add-ons (basic guarantee on a sliding scale) Need transitional arrangement since MPF would mature after at least years contribution (i.e. in ) [let s say nonmeans tested for those who worked over a required number of years depending on age] Means-testing for those without accounts under MPFO and ORSO

17 Summary of major proposals Type Variations Remarks Universal Additional contribution Diverting MPF contributions Additional profit tax - Still need targeted housing/ medicine -Should civil servants be included? Targeted Converting asset to annuity (Public Pension Fund) Asset + income test Continue to maintain a small demo-grant?

18 ORSO + MPF Contribution (Persons, '000) Age 65 having MPF or ORSO Account Not having MPF or ORSO Account No. not having MPF /ORSO and need basic guarantee (56%) ('000) Amount of full basic guarantee ($m) Average partial guarantee ($m) [3750 in first year, 3000 in 2035] Total basic guarantee (government spending, $m)

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21 Discussion All proposed system are expensive, even keeping the existing system (at 2041, 2.5% of GDP; other require 3.5-4%) If civil servant pension is included, it will be another 2.5% GDP by Expenditure changes in line with dependency ratio for all other proposed system, since contribution is involved Foreseeable increase in other social spending because of ageing (long-term care, health care) Currently total government expenditure of 20% GDP has to be changed Expected increase in taxation A political decision, what kind of social contract we want.

22 Thank you!