I came across an interesting year-old blog on reform of social pensions in Hong Kong, which I had somehow missed until now. The author of the blog is a Hong Kong businessman and politician. His views are shared by many in the middle and upper classes of this former British colony. His English has flaws, but his defence of means tests is worth reading.
The controversial elderly allowance-”Special OAA” funding is going to determine in Financial Committee on Friday, 26th Oct. Special OAA is a policy recommended elderly over age 65 increase the OAA monthly payment from $1,110 to $2,200 given an asset-income test has passed. Legislative Council questioned the policy and mean-test while the government stood firm to implement the policy.
According to the government, Hong Kong permanent residents aged 65 or above just simply declare their assets to be below $186,000 and monthly income below $6,660, there could be an increase in subsidy. ….
Some … OAA opponents emphasized that the means tests should be eliminated. The elimination could act as the first step for establishing a universal retirement protection system. They also point out that in long-term, $2,200 per month is certainly not enough to maintain the basic life. The new OAA payment is calculated as just slightly less than ten full days working payment at the minimum wage $28.
If the government wants to lessen its financial burden, having means test for elderly allowance is not the only way. In contrast, it would [could?] post further reduction on taxable citizens for those who need to take care of elderly. ….
[Government could also] redirect its policy to independent funding by elderly themselves rather than through pension. Such as restoring incentives to save so that people can support their life when getting aged. Means testing is scarcely going to provide the encouragement on saving.
Wong Po Yan, “New Elderly Allowance Policy”, Hong Kong Law Blog, 25 October 2012.
Wong Po-yan (born 1923 in Mainland China) was appointed in 1979 by Governor Murray MacLehose to the Legislative Council, where he served until 1988. The “Special” OAA he mentions is now law, and is officially known as the Old Age Living Allowance (OALA).
Mr Wong’s post attracted 8 comments, all in support of the means test. None of them – including Mr Wong – call for abolition of the monthly OAA of HK$1,090 (US$140), which is given without a means test to all residents from the age of 70, unless they receive an alternative pension from government. I missed the opportunity to comment, so am posting my reaction here.
Seniors who pass a means test are entitled, from age 65, to an Old Age Living Allowance (OALA) of HK$2200 (US$285) a month. For those who apply and qualify, the OALA replaces any OAA (HK$1090) or disability allowance (HK$1400) they currently receive. Other seniors 70 years of age or older will continue to receive the HK$1,090 OAA.
The OALA is only 60% of Hong Kong’s official poverty line of HK$3,600 a month. Despite its name it is not enough to live on, so is too small to lift all seniors out of poverty. I think that Mr Wong would agree that the amount is too low. Mr Wong clearly does not like the means test. I also dislike it but, unlike Mr Wong, favour replacing it with a universal pension from age 65, with benefits at least as large as the poverty line of HK3,600 (US465) a month. This would eliminate all senior poverty in the territory.
Mr Wong proposes replacing means tests with two measures. Both benefit the wealthy and exclude the poor – the precise opposite of the intended effect of means tests. His first proposal is to reduce the taxes of those care for the elderly. This is tax expenditure, equivalent to a government subsidy that goes primarily to the wealthy – those with enough income and assets to pay taxes. An alternative is to provide a direct cash grant to caregivers. This would ensure that all caregivers – wealthy and poor – receive a subsidy. But how can government ensure that the elderly receive all the benefits from such a subsidy? This can be accomplished by giving the cash directly to the elderly, rather than channel it though a caregiver (most often an adult child).
Mr Wong’s second proposal is to encourage the young to save for their own old age. I presume that Mr Wong wants government to provide tax incentives, perhaps even matching contributions, for those who save in retirement savings accounts. This policy has been implemented by many countries, with two results. First, the poor are unable to save, so face even greater poverty in old age. Second, those who do save in tax-favoured retirement accounts reduce other forms of saving (or increase their indebtedness), so the policy has little impact on net saving. Also important is the fact that increased saving by the young does nothing to improve the well-being of those who are already old. In any case, is this really a new policy? Doesn’t the government of Hong Kong already have a plan in place, known as the Mandatory Provident Fund (MPF), intended to encourage retirement saving?
In sum, a policy for Hong Kong that is fair and efficient is the universal age pension: a new OAA, with a minimum benefit equal to the poverty line, and an age of eligibility set at 65 years. This would eliminate senior poverty in one stroke, without penalizing those who save for retirement and without denying benefits to those who continue to work beyond age 65. A universal pension is affordable, because it would replace the existing OAA, OALA and disability allowance. To ensure future adequacy, the universal pension should be indexed to consumer prices or, even better, the poverty line.