Christine Fang: Why Hong Kong’s pension provisions need a total reboot

(Origninally published in SCMP, 21st December, 2015)

Why Hong Kong’s pension provisions need a total reboot

Christine Fang says it’s no longer enough to plug the loopholes, as our ageing society demands that the government commits itself to no less than universal retirement protection

The government has been pushed to launch a public consultation on retirement protection, a controversial issue for decades in Hong Kong. It is a test of governance as it impinges on the sustainability of our fast-ageing society and the pivotal role of government in social development.

According to a recent survey by the University of Hong Kong’s public opinion programme, 90 per cent of the 800-plus people questioned believe their MPF funds will only sustain them for about seven years after retirement. Meanwhile, our life expectancy at birth is expected to increase. The drain on our public finances can only rise in the coming years.

Longevity due to medical advancement is a mixed blessing. Many elderly people in Hong Kong do not have adequate private savings and lack stable financial resources to pay for basic living expenses. Low-wage earners can barely make ends meet, never mind save. Even middle-income pensioners mostly do not have financial security, in view of rising health-care and living costs.

Policy failures have led to many elderly people falling through the cracks. The Mandatory Provident Fund has largely failed to ensure sufficient financial resources for employees and does not cover the non-working population, such as housewives. Many elderly people lacking a stable income do not apply for Comprehensive Social Security Assistance (CSSA) due to its labelling effect – in particular, the requirement for a “bad son” statement, in which the children of the applicant had to declare they would not provide support for their parent. The Old Age Allowance and the Old Age Living Allowance can only provide supplementary support.

Going down the old path of patching up loopholes is futile. Expanding welfare handouts to stringently screened elderly folks is only a remedial measure. Retirement protection should aim to prevent our elders slipping into poverty.

The recent battle between employers and employees’ representatives over a proposal to bar employers from “offsetting” severance pay against MPF payments is telling – any MPF reform will run up against entrenched vested interests. This makes expanding the coverage and level of old-age income protection exceedingly difficult, if not impossible.

We need new thinking in our approach. Securing a basic livelihood in old age concerns every citizen. It should not be considered an anti-poverty measure. It is misleading for the government to reframe the need for universal protection as giving out money from the public coffers, “regardless of rich or poor”. Collective risk pooling and shared responsibility are needed because of the difficulties for individuals and families to ensure sufficient private savings.

Both the World Bank and the International Labour Organisation advocate setting up a universal social protection floor to old-age retirement protection. However, Hong Kong lacks a publicly managed contributory social insurance scheme that may offer collective risk pooling and a minimum guaranteed basic livelihood. Proponents of the collective scheme advocate shared responsibility and three-way contributions, from the government, employers and employees. How to distribute the responsibility, or whether part of the mandatory MPF payment should be siphoned off to contribute to a government-managed social insurance scheme is something that should be publicly debated.

Further, old-age income protection for all promotes solidarity at a time of sociopolitical divisions. Pension reform can supply the economy with a large pool of funds, which in turn can strengthen Hong Kong’s capital market and contribute to financial stability.

Undoubtedly, it is extremely difficult to build a consensus on this issue, with its diverse interests. Strong and genuine government commitment to engage with all is a must. Hong Kong needs to act fast; otherwise, the window for action will close quickly, leaving the community with few or no options.

Christine Fang Meng-sang, former chief executive of the Hong Kong Council of Social Service, is a professor of practice at the Faculty of Social Science at the University of Hong Kong