Should the Universal Retirement Protection Scheme Be Established in Hong Kong?

Student Name: Steph Wong Ching Lam

Student No.    : s166941

Project 1 Paper

“Should the Universal Retirement Protection Scheme be established in Hong Kong?”

        Recently, the problem of aging population and elderly poverty is getting more and more serious.  According to the commissioner of Census and Statistics Department, Tang wai-kong, the population is expected to remain on an aging trend that the proportion of the population aged 65 and over is projected to rise markedly, from 13% in 2011 to 30% in 2041(Tang wai-kong, 2012, Hong Kong Population Projections 2012-2041, para. 8). Referred to the data released by the Hong Kong Population Census in 2012, the number of elderly people living in poverty is more than 300,000, one of the three elderly people is living in poverty in average(Hong Kong Population Census, 2012).

        One of the main causes of poverty among the elderly is the lack of retirement protection for grassroots workers and the labelling effect of the CSSA system. Therefore, civil society has been striving for the establishment of a universal retirement protection scheme for many years to replace the existing MPF schemes with structural deficiencies to provide a reasonable standard of living for the elderly. However, is the scheme really suitable for Hongkongers? After considering the treasury balance, social interests and socio-economic development, the answer is no. In order to collect second-handed evidence on support and objections, this essay is going to analysis empirical and testimonial evidence and collect different opinions of different groups of interests in Hong Kong through news, online research, data released by the government, etc.

        First of all, the Universal Retirement Protection Scheme is not sustainable. The scheme suggests persons aged 65 and above are not subject to review and receive $ 3,500 per year. As for the capital, the Government has to inject $ 50 billion and then allocate the expenditure on the elderly living allowance, the elderly living allowance and the elderly CSSA to the project. This shows that the scheme increases government financial pressure, making other projects benefiting the society of Hong Kong suspend. The emeritus professor (Social Work and Social Administration) of the University of Hong Kong, Chow Wing-sun pointed out that at 2026, there would be a deficit for the year and balance in 2041 would be reduced to $13.5 billion so the scheme cannot continue in 2042. The government needs to review the situation in advance(Chow Wing-sun, 2014, Research Report on Future Development of Retirement Protection in Hong Kong, p.41). “Policy Department A: Economic and Scientific Policy” (2011) revealed that the German Government which has carried out the URP scheme afforded the Maastricht Debt in 2009 and the debt was 73% of the GDP(Policy, 2011). This is a scaring evidence showing how low its sustainability is and how unaffordable its cost is.

        The Government would have to face the rapid rise in spending. The head of the institute's Department of Asian and Policy Studies, Chou Kee-lee said it is important to tackle old-age poverty, but the government must be able to bear the costs long-term that its long-term price may pose problems for the government, incurring an average of HK$10.8 billion in additional costs each year(Chou Kee-lee, 2014, Give more elderly Hongkongers social security benefits to reduce poverty: study, para. 9). Although the Government has a lot of reserves, spending such a large amount of capital in only one project in such a short period of time is irrational. The risk is so high that a serious break in treasury balance would be caused. Also, due to its low sustainability, people who now pay for the elderly every month, would not be supported by the youngsters when they turn old. As a result, there would be only pay and no harvest to them. Therefore, the Universal Retirement Protection Scheme is unsustainable and unrealistic as well as unreliable. The Government should focus on improving the existing OAA system so as to effectively alleviate the poverty of the elderly and carry out policies that both the Government and the public can afford, rather than risky and lose-lose.

        Secondly, the Universal Retirement Protection ignores social interests, especially the younger middle-class. The scheme does not consider the situation of them. In fact, most of them have planned a personal retirement plan. The Old Age Allowance provides $2,390 per month. The project provides a $3500-pension-subsidy is only $1110 more than the Old Age Allowance. Obviously, it does not really help. However, the scheme also suggests the "old salary tax" will require employers whose monthly salary is $6,500 or more, pay a monthly contribution of 1% to 2.5% on a monthly basis, unlike the existing MPF schemes. Refer to data released by the Mandatory Provident Fund Schemes Authority in 2015, the MPF scheme does not require employees whose monthly salary is less than $7100 to pay(MPFA, 2015). It is found that their burden of the contribution would be much heavier than that of the existing MPF. Many youngsters would struggle for the contribution and the rising taxes, but the project may have to stop due to the high financial burden of the Government. The scheme is just like a “Ponzi Scheme”, which means a fraudulent investing scam promising high rates of return with little risk to investors generating returns for older investors by acquiring new investors based on using new investors' funds to pay the earlier backers.

        “Passion Times” (2016) reported that “when the post-war baby-boomers generation just about reach the end-of-the-road, they want to create this URP scheme to further squeeze the young people? They, the previous generation, will benefit from the scheme without contributing, while our generation has to make contributions the whole way, and whether or not the fund will all face bankruptcy in the next few decades is still an unknown”(Passion, 2016). In other words, youngsters cannot enjoy the contribution when they become elderly. They would strike for supporting others in their whole life. On the other hand, some people have no savings for elderly life as they are lazy to work thus having few incomes. Nonetheless, they are subsidised by the URP scheme which is partly supported by the middle class. The middle class, in turn, support the group of people contributing less to the community. This is so harsh to the middle class. The interests of them were seriously ignored, resulting in the problem of injustice. Therefore, the scheme would ruin the social interests. The Government should consider the needs of various classes and implement a subordinated pension system that would not deprive a large amount of middle class in Hong Kong.