Archive for the ‘Universal Transfers’ Category

on the Hong Kong government’s rejection of universal pensions

Monday, May 2nd, 2016

Chief Secretary Carrie Lam delivered a speech two months ago that effectively “killed any hope for a universal pension”. Michael Littlewood, from the University of Auckland’s Retirement Policy and Research Centre, wrote a letter in response, addressed to the editor of a major Hong Kong daily.

Chief Secretary Carrie Lam Cheng Yuet-ngor … said such a [universal pension] scheme would cost HK$22.6 billion a year, raising questions of sustainability and equity, and much has already been done to support the old. She also said the cost was HK$2,395 billion over 50 years. That kind of projection is statistically irrelevant; the annual cost is the only one that matters.

HK$22.6 billion is just about 1 per cent of Hong Kong’s 2015 gross domestic product. So cost, sustainability and equity seem not to be the real issues. Policy inertia and vested interests are the more likely explanations. ….

Poverty amongst the old needs immediate attention [in Hong Kong].

Here is a suggestion – abolish tax breaks for retirement saving. Tax breaks for the compulsory Mandatory Provident Fund seem particularly unnecessary. If they don’t actually work (given that a saver’s tax break is a taxpayer’s tax cost), the amount saved will more than pay for a truly universal pension.

Michael Littlewood, “Hong Kong should abolish tax breaks on MPF to fund universal pension scheme“, South China Morning Post, 1 May 2016.

The Chief Secretary reports to the Legislative Council, and is the most senior principal official of the Government of the Hong Kong Special Administrative Region.

There is much more of interest in the published column. Click on the link above to read the full, ungated letter.

support for universal pensions in the Philippines

Thursday, April 28th, 2016

Negrense senatorial bet [candidate] Neri Colmenares said … he would … like to push for a P1,500 [US$32] social pension for all senior citizens regardless of their status, whether or not they are members of the SSS [Social Security System] or GSIS [Government Service Insurance System], or with children abroad.

At present, the social pension is only P500 [US$10] and those who are SSS or GSIS  pensioners are disqualified, and the cutoff age is 77 years old. Colmenares stressed the original Social Pension Act gives P1,500 per senior citizen per month.

Juancho Gallarde, “Bet batting for pension for barangay officials“, Visayan Daily Star, 27 April 2016.

According to a 2016 report, “The Philippine Social Pension at Four Years: Insights and Recommendations“, written by Charles Knox-Vydmanov and Daniel Horn of HelpAge International in London, with Aura Sevilla of Coalition of Services of the Elderly in Manila, the 2010 Social Pension Act promised pensions to indigent citzens aged 60 and over. “In its initial 2011 implementation, adjusting to fiscal constraints, coverage was limited to those aged 77 and over. However, in 2015, this was expanded to those aged 65 and over.”

There is no mention in Mr Gallarde’s article of any change in age of eligibility, so apparently it continues to be 77 years. It is not clear how Mr Colmenares would finance a universal pension, since he promises also to fight for lower income taxes.

universal pensions in Lesotho?

Saturday, April 23rd, 2016

Lesotho, a small country completely surrounded by South Africa, in November 2004 began to provide its citizens aged 70 and older with a non-contributory Old Age Pension. The OAP was pension-tested, but not tested against other family income or assets.

OAP monthly benefits have increased over time, and are now equal to 40 US dollars (37% of per capita GDP). For a county as poor as Lesotho, this is a very generous pension. The age of eligibility, however, remains 70 years.

Lesotho’s Old Age Pension from the beginning excluded existing pensioners, so was not universal. I was very pleased to see a recent note, published by the ILO, with the title “Lesotho: Universal Old Age Pension”. Is it possible that Lesotho has removed the pension test for its social pension?

The Old Age Pension (OAP) is a tax-based scheme for all older persons . ….

With more than 4 per cent of its population above the age of 70, Lesotho has a larger share of older people than many countries in sub-Saharan Africa. All citizens of Lesotho over 70 years of age are entitled to a monthly pension benefit of 550 Lesotho Maloti (LSL), equivalent to US$40. The OAP was introduced to lift older persons out of poverty and is the largest regular cash transfer in Lesotho, covering about 83,000 persons (4.5 per cent of the population). While coverage of eligible persons is approximately 100 per cent, it is estimated that many more benefit indirectly .

Prior to the OAP’s introduction, only war veterans and civil servants received a pension, covering less than 3 per cent of older persons in Lesotho. ….

The Pensions Unit … transfers funds to around 300 payment points across the country on a monthly basis. ….

On a few occasions, remote payment points were served by helicopter because of weak road infrastructure. The national army provides security at service points and while transferring the money. ….

Although OAP utilizes existing structures and government actors, the administrative costs are estimated to be quite high at around 20 per cent.

Thea Westphal, “Lesotho: Universal Old Age Pension“, International Labour Office (ILO), Country Note Series (March 2016).

After much searching, I was unable to confirm removal of the pension test. Lesotho’s social pension scheme most probably is still a universal minimum pension. It is close to universal only because few older people have any other type of pension. The implicit coverage, reported in the ILO note, of 112.5% (4.5/4) of age-qualified residents might reflect an underestimate of the population aged 70 and older, inclusion of persons younger than 70 as eligible beneficiaries, or – more likely – some combination of both errors.

I was surprised to learn that the administrative costs – at 20% of benefits – are so high. This might be due to the high cost of delivering cash payments to pensioners, especially those who live in remote areas of the country.

Earlier TdJ blogs on Lesotho are posted here.

universal pensions commence in Zanzibar

Monday, April 18th, 2016

Zanzibar’s universal pension scheme is now fully operational. Thought du Jour covered this historic event before, here and here. Sarah Gillam writes that older people in Zanzibar welcome the initiative, but would like to see the age of eligibility reduced to 60 years, and elimination of fees that older people must pay to access healthcare.

Older men and women in Zanzibar will have a government-funded universal pension for the first time today (15 April), the first of its kind in east Africa.

Anyone over the age of 70 will receive a monthly non-contributory pension of Tsh 20,000 (US$9).

Mama Ghanima Othman Juma, 67, [a representative of Zanzibar’s older people] …  urged the government to consider lowering the pension age to 60 and called for the effective implementation of free healthcare, with older people given priority. ….

Although Zanzibar health policy states that older people should receive free healthcare, this policy has not been effectively implemented and therefore requires older people to pay fees when they attend a clinic or hospital.

Sarah Gillam, “Zanzibar’s new universal pension the first of its kind in east Africa“, HelpAge e-Newsletter, 14 April 2016.

See also this blog:

Amleset Tewodros, “Zanzibar: Celebrating a new pension and the life of Bi Kidude“, HelpAge Blog, 15 April 2016.

The legendary Fatuma binti Baraka (c.1910s – 17 April 2013), a native of Zanzibar, was known also as Bi Kidude. She performed as a member of the Shikamo Jazz band of older musicians from Dar es Salaam, the capital of Tanzania.

Hong Kong government snubs universal pensions

Monday, April 11th, 2016

It is clear that universal pensions are not on the agenda of the government of Hong Kong, even though they were recommended in the Chow Report commissioned by government more than two years ago.

The chief secretary attracted more boos than cheers at a public consultation forum as she tried to defend the government position on retirement protection. ….

[Carrie Lam Cheng Yuet-ngor] said the government has never promised to introduce universal pensions, and emphasized that it has the responsibility to point out the great financial burden such a scheme would impose on the people.

Ten members of the Reclaiming Social Work Movement held up their left palms on which was written the Chinese character for “crooked” suggesting Lam was not truthful. ….

The six-month consultation on retirement protection, being conducted by the Commission on Poverty, will end on June 21.

Adeline Mak, “Lam jeered on universal pension snub“, The Standard, 11 April 2016.

Zanzibar’s new universal pension

Wednesday, March 30th, 2016

Zanzibar’s universal pension scheme is commencing just three weeks later than promised last year. Beneficiaries (residents aged 70 years and older) are expected to number 24,000. The monthly pension is 20,000 Tanzanian shillings (equivalent to US$9.14 at the current exchange rate). The semi-autonomous region of Zanzibar contains less than 3% of Tanzania’s total population.

Arrangements for the much awaited programme are at the final stage.

“We have been working around the clock to ensure that the eligible senior persons start pocketing the cash beginning the last week of April, as approved by the government last year,” said Mr Salum Rashid Mohamed, the head of the Social Protection Unit in the ministry of empowerment and social welfare.

He said that his office, in collaboration with local authorities (community and district leaders), have been identifying and registering the elderly in all areas of Zanzibar so that “No elder is left out in the new scheme.”

“We are now finalising verification of the names/list. But the exercise is continuous, whenever a person attains 70 years of age, he/she will be included in the list upon verification,” said Mr Mohamed emphasizing that the universal pension is for all senior citizens regardless of whether he or she was a civil servant or not.

He said … the universal pension will be a top up for the elderly [civil servants] already receiving their retirement benefits.

Issa Yussuf, “Universal pension out soon“, Tanzania Daily News, 30 March 2016.

tax breaks for the wealthy

Monday, March 21st, 2016

Tax breaks for retirement saving are regressive. Most benefits go to the wealthiest. The poor have little use for tax breaks on saving because they have little left over, once they pay for essential living expenses. Also, a tax break for someone in a low tax bracket is less valuable than a tax break of the same amount for a person in a high tax bracket.

John Ralfe, a management consultant in Nottingham, UK, explains.

Public policy takes it for granted that saving for retirement … should be encouraged by tax breaks. But, in truth, the £30bn net spent each year [in the UK] on pension tax breaks is misguided, and does nothing for low earners, who have precious little left to save at the end of the month. ….

Rather than trying to tinker with the current system, tax relief on pension saving should be scrapped altogether and the £30bn net saved used to materially boost the basic state pension, benefiting lowest earners most. This would be deeply unpopular with higher earners and the vested interests of the pensions industry, but is the only way for the lower paid to stand any chance of a half-decent retirement.

John Ralfe, “Scrap tax relief and boost the basic state pension to benefit the lowest earners“, letter to the editor, Financial Times, 21 March 2016 (metered paywall).

Britain’s current basic pension is noncontributory, and essentially a universal pension for everyone with at least 30 years of residence in the UK as working-age adults. The modest flat pension, currently £115.95 (US$167) a week, is taxable as normal income, so Mr Ralfe is correct to note that an increase in the size of the basic pension provides more benefits for the lowest earners, who are in a low (or zero) income tax bracket.

The basic pension will change radically for those who reach the state pension age beginning 6 April 2016. It will be means-tested and contribution-tested. The state pension age itself is rising, and will reach 68 for both men and women in 2018. The UK pension system is extremely complex, and changes frequently.


towards a universal pension in Australia?

Thursday, March 10th, 2016

Australians (at least some of them) continue to give thought to reform of their pension system, specifically to the possibility (and the fiscal cost) of emulating New Zealand’s universal age pension.

For more than a century, older Australians have enjoyed access to a means-tested social pension known as the Age Pension. In 1992 a second, contributory pillar (Superannuation Guarantee) was added. The contribution rate was set initially 3% of wages, increasing gradually over time to reach 12% by the year 2019. The rate is currently 9.5%. All contributions are deposited in a private retirement savings accounts, and can be withdrawn (with interest) as a lump sum or annuity upon retirement.

Mandated saving (the ‘Super’) has never been popular with Australian workers. The government claims it introduced it to benefit workers, so that they can retire in greater comfort than they would otherwise enjoy. Workers do not buy this. They fear that if their retirement savings may make them ineligible for all or part of the means-tested Age Pension, leaving them no better (or not much better) off than they would have been without contributing to Superannuation Guarantee.

There is another way to achieve the goal of decent retirement for Australian workers: scrap Superannuation Guarantee, eliminate the means-test for an Age Pension, and allow workers to save whatever and however they like for additional income in old age. Best of all, this reform can be financed easily by eliminating the tax breaks currently given on mandated contributions to Superannuation Guarantee. Australian economist Geoff Carmody explains. (more…)

delays in Hong Kong pension reform

Wednesday, March 2nd, 2016

Two months ago the government of Hong Kong initiated a six-month consultation process on a retirement income report that it received sixteen months earlier, in August 2014. The Report, commission by government and drafted by a research team headed by Professor Nelson Chow of the University of Hong Kong, recommended a universal pension of HK$3,230 [US$417] a month for each Hong Kong resident from the age of 65. This universal pension, according to Chow, would cost Hong Kong taxpayers an estimated HK$10 billion a year, equal to about 2.5% of the annual budget.

Ms Carrie Lam, chair of the government’s Commission on Poverty, admits that the consultation process has not gone well: (more…)

towards universal pensions in India

Friday, February 19th, 2016

Three economists at the Indian Institute of Management (IIM) in Bangalore, India, in a recent report conclude that universal, government-financed pensions are optimal for a country like India, where the vast majority of workers have no access to secure income in old age. (more…)