The most expensive option on the table could cost HK$2.4 trillion over 50 years

Rolling out a universal pension in Hong Kong at a time when post-war baby boomers head for retirement will place a crushing burden on young taxpayers and the economy, officials warned on Tuesday.

The foremost question presented in the public consultation for retirement protection is a choice between a costly universal scheme that everyone above a certain age is entitled to, and a seemingly more affordable means-tested benefit to help "those with financial needs".

Paying each senior HK$3,230 every month could cost society HK$2.4 trillion over the next 50 years. Moreover, the government's fiscal reserves would be exhausted eight years earlier than expected without a tax rise. Workers might also be asked to surrender a few percent of their pay to fund the pension bill.

The other option aims to boost benefits for elderly people eligible for the Old Age Living Allowance (OALA) with assets worth under HK$80,000. They could receive HK$840 extra every month on top of the OALA. The minimal boost would still cost taxpayers HK$255 billion in the next 50 years.

The government again made it clear in the consultation paper that it did not favor the "regardless rich or poor" approach - as not only would it put a crushing burden on taxpayers, it would also use up money that could have been spent on services needed by elderly residents.

The post-war baby boomers are heading for retirement. The elderly population is set to surge from 1.12 million in 2014 to 2.58 million in 2064, while the size of the workforce will shrink to 3.11 million in 2064, from 3.6 million in 2014.

But the "helping the poor" option has come under fire from political parties and concern groups, with the HK$80,000 asset cap said to be too low. Government sources also admitted they had not taken into account how returns on the Mandatory Provident Fund (MPF) would affect future retirees' asset levels.

Chief Secretary for Administration Carrie Lam Cheng Yuet-ngor told reporters the options were outlined to illustrate the impact on public finances of different approaches to retirement protection. She said taxpayers had to agree to being required to pay for older residents.

"Handing out HK$3,230 a month alone will not achieve the goal to provide comprehensive retirement protection," Lam added. Her view had the support of Law Chi-kwong, an expert in social work and a member of the Commission on Poverty.

The paper covered another hot topic. For the first time since the MPF was launched in 2000, the government is pondering the future of the offsetting mechanism, whereby employers are entitled to withdraw from their contributions to the MPF to settle severance and long-service payments.

In 2014, 43,500 workers each lost an average of HK$69,200 in MPF benefits as their bosses took advantage of the offsetting rule.

The business community is firmly against any attempt to drop the offsetting privilege. New People's Party lawmaker and businessman Michael Tien Puk-sun even requested a footnote to state his objection to discussing this subject in the paper.

But as the offsetting rule has clearly undermined the MPF's function for retirement protection, Lam found it suitable to address it in the consultation.

The consultation will last for six months. The current administration will decide on which approach to be adopted, but measures are unlikely to roll out before its term ends in June 2017.

kahon@chinadailyhk.com

(HK Edition 12/23/2015 page7)