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Following is the keynote address by the Secretary for Labour and Welfare, Mr Matthew Cheung Kin-chung, at the 6th Annual Cross Straits Pension System Forum today (October 23):
Ms Yvonne Sin (Chairman, Hong Kong Retirement Schemes Association), Madam Wang Jianlun (Chairman, China Social Insurance Association), Ms Grace Lee (Chairperson, Pension Fund Association in Taiwan and Member of the National Pension Supervisory Committee, "Ministry of Health and Welfare", Taiwan), Dr Chan Kin-sun (Chairman, Macau Social Security Society), Ms Lau Ka-shi (Forum Convenor, Hong Kong Retirement Schemes Association), Mr Chua Hoi-wai (Chief Executive, Hong Kong Council of Social Service), distinguished guests, ladies and gentlemen,
It gives me great pleasure to address this high-powered audience comprising policymakers, regulatory experts, academics and fund management experts from Beijing, Taiwan, Macau and Hong Kong.
I would like to thank the Hong Kong Retirement Schemes Association and the Hong Kong Council of Social Service for organising this 6th Annual Cross Straits Pension System Forum. This forum provides an ideal platform for exchanging ideas and sharing best practices on retirement protection and old-age pensions in the Greater China region.
Let me begin by giving an overview of Hong Kong's existing retirement protection system.
Hong Kong's population is rapidly ageing. The number of elderly people, defined as those aged 65 or above, is expected to rise significantly from about 1.02 million (or one in seven of the population) now to 2.56 million (or one in three of the population) in 2041. It is noteworthy that our life expectancy is high by world standards. On average, men and women are expected to live 81 and 86 years respectively. The figures will rise to 85 years for men and 91 years for women in 2041.
Generally in line with the multi-pillar model promulgated by the World Bank, our retirement protection system consists of three core pillars, namely voluntary private savings, the Mandatory Provident Fund (MPF) System and the non-contributory social security system made up of the Comprehensive Social Security Assistance Scheme, Old Age Allowance, Old Age Living Allowance and Disability Allowance. This three-pillar model was adopted in the 1990s after extensive and lengthy public discussion in the community.
The current-term Hong Kong Special Administrative Region (SAR) Government has ranked the task of preparing for an ageing society as a key policy priority. To tackle the problem of elderly poverty, the Government has pledged to study how to improve the present social security and retirement protection systems.
To live up to our policy pledge, we rolled out without ado the Old Age Living Allowance in April last year. The allowance, currently at HK$2,285 per month, is designed to supplement the living expenses of elderly people in need of financial support but not eligible for the Comprehensive Social Security Assistance as they have some means. As many as 420 000 senior citizens, or about 40 per cent of our elderly population, are benefiting from the Old Age Living Allowance, which has proved effective in easing elderly poverty.
Other measures introduced in the past two years include the provision of Old Age Allowance (currently at HK$1,180) for the benefit of eligible elderly Hong Kong citizens settling in Guangdong. We have also doubled the amount of the elderly health-care voucher to HK$2,000.
In discussing Hong Kong's retirement protection, it is important to bear in mind that about 74 per cent of our elderly aged 65 or above and about 87 per cent of those aged 70 or above are currently receiving social security payments of one form or another. Total recurrent spending on social security payments for the elderly for 2013-14 stood at HK$24 billion and is expected to rise to HK$25 billion in the current financial year, representing a significant 8 per cent of the Government's total annual recurrent expenditure.
Apart from cash assistance, we have been devoting more and more resources to elderly care services. The Government's recurrent expenditure on community and residential elderly care services in 2014-15 is estimated at HK$6.2 billion, representing 11 per cent of the total recurrent social welfare expenditure, and up by 15 per cent over last year ($5.4 billion).
If one adds up public spending on social security payments for the elderly, community and residential care as well as health-care services, the amount will reach a substantial HK$56.3 billion or 18.3 per cent of the total recurrent government expenditure in this financial year.
To promote active ageing, we have extended the Public Transport Fare Concession Scheme for the Elderly and Eligible Persons with Disabilities, commonly known as the "$2 Scheme", to more modes of public transport. At present, the number of daily average passenger trips made by elderly persons is about 620 000. This is estimated to cost the public purse HK$600 million in this financial year.
I have cited a number of facts and figures in order to show that the Hong Kong SAR Government is firmly committed to protecting and enhancing the well-being of our senior citizens.
In looking at the wider issue of retirement protection, we need to bear in mind that the MPF System is an important pillar in its own right. Launched in December 2000, the MPF is a mandatory, privately managed, employment-based and fully funded pension system based on defined contribution. It complements the non-contributory social security system and voluntary private savings in providing retirement savings for our population. Before the implementation of the MPF, only about one-third of the local workforce had some form of retirement protection. Today, some 86 per cent of the working population is covered by the MPF and other retirement schemes. Going forward, the Government and the Mandatory Provident Fund Schemes Authority will continue to implement measures to drive competition and fee reduction so as to further strengthen the role of the MPF System as one of the key pillars of retirement protection in Hong Kong.
In March 2013, the Commission on Poverty appointed a consultancy team led by Professor Nelson Chow of the University of Hong Kong to conduct a study on the future development of retirement protection in Hong Kong. After months of data collection and in-depth analysis, the research report was submitted to the Commission on Poverty on August 20, 2014, and made public on the same day.
The study has made a number of key and interesting observations and I would like to mention some of them here.
First, the global trend is to adopt a multi-pillar design approach with diversified channels of retirement income. Second, there is no one-size-fits-all scheme and each place would need to take account of its inherited system as well as economic, institutional and political constraints in the search for an optimal system. Third, in face of an ageing population, many places have been striving to balance the competing goals of broad coverage, system sustainability and adequacy of pension benefits through a range of measures. These include extended scheme coverage, tax hikes, higher employee/employer contribution rates, delayed withdrawal of pension benefits, tax incentives for prolonged stay in the workforce, and more efficient retirement fund management. Other more fundamental pension reforms include promotion of defined contribution schemes and voluntary saving plans, as well as development of notional accounts to replace the original pay-as-you-go system.
Given that retirement protection would affect all Hong Kong people and have far-reaching impacts on our fiscal sustainability and socio-economic developments, the Commission on Poverty will need time to fully understand and examine the report, and discuss relevant issues in depth.
The study provides a solid basis for informed and focused public discussion. Indeed, it has generated a lively debate in the community and media but views so far are sharply divergent. In essence, the debate revolves around four important and related issues.
The first issue is whether the fundamental direction to improve retirement protection should be to introduce a new universal non-means-tested scheme with a uniform payment level or to build on the existing system and target limited public resources to help the elderly most in need through means tests. While there are views in favour of the introduction of universal retirement protection, there is also a strong body of opinion that a universal scheme would impose a heavy burden on the public coffers over time.
The second issue is sustainability. The concern is over the far-reaching impact of improving retirement protection on public finances. There is concern in some quarters that increasing public expenditure to improve retirement protection benefits would worsen the Government's fiscal position. In the long run, it would likely further advance the anticipated structural deficit problem previously projected by the Government's Working Group on Long-Term Fiscal Planning as a result of a fast ageing population. It should be noted that in the report by Professor Nelson Chow and his team, all the universal non-means-tested proposals covered in the study are unlikely to be financially sustainable in the longer run.
The third issue is affordability. This boils down to the simple but crucial question of who should foot the bill. Some people have highlighted the controversies involved in raising tax or requiring additional contributions by employers and employees to finance new proposals. They consider that additional contributions by employers and employees would amount to a form of taxation.
The fourth issue is the interface with the existing Mandatory Provident Fund. This relates primarily to the idea of "transferring" the contributions from the Mandatory Provident Fund Scheme as a financing option. Some members of the community feel strongly that this would undermine the function of the Mandatory Provident Fund System as a pillar of retirement protection and would be a non-starter.
The Hong Kong SAR Government is conscious of the immense challenges posed by our rapidly ageing population. We will adhere to our objective of promoting the well-being of elderly people in all aspects of their life by providing them with the assistance and services which they may need to support them in their golden years while preserving our cherished virtue of self-reliance and family support.
We adopt an open and pragmatic attitude in considering the way forward on how best to improve our social security and retirement protection systems in the face of an ageing society. In the final analysis, for any proposal to fly, it must be financially sustainable in the long run, affordable to both the Government and stakeholders, acceptable to the community at large and in Hong Kong's overall and long-term interest.
Ladies and gentlemen, I believe that the exchanges of this forum will not only benefit the participants but also provide good and timely food for thought for the local community. My warm thanks to the Hong Kong Retirement Schemes Association and the Hong Kong Council of Social Service once again for staging this forum. Thank you.
Ends/Thursday, October 23, 2014
Issued at HKT 11:37
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