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Income Inequality, Poverty and Income Protection Schemes For the Aged in Hong Kong: Crisis and Dilemma

Main Themes:. 1. Income inequality in aged population: an important social concern2. The concern should go beyond simple income inequality to a fundamental concern on: * poverty among the aged; * lack of effective income protection schemes; * Can the HKSAR government be able to afford the huge increase in non-contributory social security payments?.

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Income Inequality, Poverty and Income Protection Schemes For the Aged in Hong Kong: Crisis and Dilemma

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    1. Income Inequality, Poverty and Income Protection Schemes For the Aged in Hong Kong: Crisis and Dilemma Dr. Raymond Ngan Associate Professor Department of Applied Social Studies City University of Hong Kong

    2. Main Themes: 1. Income inequality in aged population: an important social concern 2. The concern should go beyond simple income inequality to a fundamental concern on: * poverty among the aged; * lack of effective income protection schemes; * Can the HKSAR government be able to afford the huge increase in non-contributory social security payments?

    3. Main Themes: 3. Crisis and Dilemma to fund the rise in social security payments: Issues 4. Suggestion: the need for a Multi-Tier Social Security System (World Bank) 5. Theoretical concern: Social Constructionist Theories to include Structural causes of the subject-matter

    4. Poverty and Income Inequality Among the Aged in HK Fundamental Social Concern because: A TIME BOMB in Public Expenditure; A Lack of determined action to face the issue apart from welfare cuts in CSSA payments (11.1% in June 2003); Yet the problems of poverty & income inequality still remain with no good solutions;

    5. A Bomb in Public Social Security Payment --- Why? Rapid Increase: (Carrie Lam, 2001) Total recurrent expenditure on social welfare increased from $7.6 billion in 1992-93 to $30 billion in 2001-02, With $21 billion (70%) spent on social security schemes (CSSA & OAA & DA) We cannot afford much longer double-digit growth in welfare spending each year (Donald Tsang, 1999);

    6. A Financial Curb in Public Spending: A Large Budget Deficit: $78 billion (Financial Secretary, 2003); $369 billion fiscal reserves will be used up by 2008-09 (Taskforce Report on Budgetary Problems, 2002); Basic Law of HKSAR: Public expenditure be within 20% of GDP (22.5% in 2004-05); A declared aim to balance the budget deficit by 2008-09.

    8. The Concern should go beyond Population Ageing to include: Structural Causes of Income Inequality & Poverty (Social Constructionist Theory: Alan Walker, Chris Phillipson): Social Context of Ageing: (1) the lack of an effective income protection scheme both for retirement & unemployment among the aged in HK;

    9. Social Context of Ageing (2) Problems in HKs Unitary Social Security System: a single, non-contributory CSSA system facing mounting rise in payments with rising unemployment; A non-means tested OAA system (85% of the aged 65+ ) 1992/93: $2,141 million (OAA payments) 2000/01: $3,562 million (+66.37%)

    10. Social Context of Ageing: 3. An Imperfect Retirement & Income Protection System: (i) MPF not cover housewives nor non-working population nor very low-pay workers, e.g. disabled & elders on low-paid part-time employment; (ii) meagre OAA benefit level; (iii) Low-coverage for retirement income protection schemes: only cover 16.7% aged population (60+) in 2000;

    11. Table 2: Elderly People (Ages 60 or above) with Retirement Protection, 2001

    12. Table 3: Provisions For Future Financial Need: Elderly People (60+) (no.of persons in ,000)

    13. Social Context of Ageing: Income Protection 83.3% aged (60+) do NOT have retirement protection; 69.9% have NONE arrangements made for future financial need; Only 16.1% would opt for fostering children support;

    14. Social Context of Ageing: Income Protection HKCSS estimated that the number of elderly CSSA recipients will increase by 304% in 30 years, From about 4.8% of the aged 65+ population in 2001 to 23.8% in 2031; 38% or 350,000 elderly people live with less than $2,000 income per month (Census & Statistics Dept., 2001);

    15. Rise in Elderly Poverty Rate Elderly Poverty rate (income less than half of median disposal income of the entire population): 1991 29.5% 1996 32.0% 2001 37.9% Source: HKCSS, 2003; Census & Statistics Dept, 2001

    16. Elderly Poverty Rate: HK compared with overseas Hong Kong 37.9% USA 20.0% UK 12% Germany 10% Japan 20% Canada 3 to 5% Source: OECD, 2001, HKCSS, 2003

    17. How do poor elders live? 38% or 350,000 elders live with less than $2,000 income per month (including CSSA & OAA); Elderly People who had paid for their own monthly expenses by item of expenditure: i) Food (67.1% versus 39% for CSSA Recipients, 1999/2000 HES ); ii) Others: 75.0% versus 12% (buying daily accessories, personal services, clothing & footwear, etc.); iii) Transportation (66.4% versus 4%); iv) Water & Utility (38.3% versus 5%); v) Accommodation (36.5% versus 22%); (Census & Statistics Dept., 2001: 85)(multiple answers were allowed);

    18. Who are these poor elders? Usually the poorest segment of society, with no income, relying on CSSA/OAA, some are just on OAA; living alone or with aged spouse or other unrelated persons or in institutions; Receiving little education/illiterate; with at least one chronic disease needing medical cost; Old, frail, public housing or in sub-standard private units; (Census & Statistics Dept., 2001). Elders aged 65+living alone: 11.6% in 1991; 12.3% in 1997; 12.6% in 2000;

    19. Fundamental Issues in Social Security Payments 1. With mounting CSSA payments, can the government afford it in the long run? (with about 24.8% aged 65+ possibly on CSSA applications in 2031, amounting to $17 Billion); 2. OAA spending about $4 billion in 2003; 3. In the short run, how could the government balance its budget deficit by 2008-09?

    20. Fundamental Concerns 4. No effective policy formulation to solve this spending dilemma apart from welfare cuts in CSSA rates; 5. Yet the Government is apprehensive on the hugh increase in such spending; 6. No Policy Consultative Papers have been issued in this domain of Income Protection for the Aged

    21. Fundamental Concerns 7. Most elderly people (71.8%) had chronic diseases; 69.9% had 2 types of chronic diseases and/or above (Census & Statistics, Dept, 2001); 8. In December 2002, 52% of Public hospital-bed occupancy & 39% of general out-patient clinic (O.P.D.) attendance were taken up by elders (Elderly Commission, 2003);

    22. Fundamental Concerns 9. No Long Term Care Insurance System; Rising Fees for non-CSSA recipients & chronic-disease patients; 10. R.A.Cummins (2003): Standard of Living, Health, Safety, Future Security are fundamental Correlates of Quality of Life (QOL). Income Security is an important domain.

    23. Possible Recommendations: Principles & Concerns 1. Time for a Comprehensive Review & Re-formulation by public policy-making government branches; Incremental welfare cuts cannot solve the problem; 2. Possible Direction: A Multi-Tier Social Security System (World Bank, 1994, 1997)

    24. Multi-Tier Social Security System (World Bank) Three Pillars: 1. A Universal Pension provided by the government; 2. A Mandatory, private funded pension Scheme; 3. Voluntary Personal Savings & Insurance. Comment: HK does not have the 1st Pillar

    25. Multi-Tier Old Age Pension System: Canada: 3-Pillar System Universal Basic Pension: (i) Old Age Security Pension (OAS): payable to 65+ with 10 years residence; subjected to a surcharge or taxback since 1989 so that elders with very high incomes receive only partial payment or no payment; (ii) Guaranteed Income Supplement (GIS): to help pensioners who have little income other than OAS; means-tested based on an income declaration with no asset test;

    26. Canadas 3-Pillar System 2. Canadian Pension Plan(CPP): compulsory and administered by government; earnings-related contribution by employees and employers; (not by private sector) 3. Registered Retirement Savings Plans (RRSP): individual savings, private saving plans with contributions exempted from tax up to CAD$14,000 per year in 2000.

    27. China: A 3-Pillar System (since 1991) 1. Basic Pension Account: 30% of the provinces average social wage; Supplementary Pension Account: indexed to the length of period of contribution and the wages of workers (e.g. 1.2 index multipler versus 0.8) 3. Individual Pension Account; Old Age Pension = 1+2+3 accounts Multi-Tier Old Age Pension System: Mainland China

    28. Implications For Hong Kong: What Next? 1. A Multi-Tier Social Security System The first tier support by CSSA & OAA be reviewed with a view to see: i) If this could be replaced by the Old Age Pension (OAP) Scheme payable to aged 65+ with HK$2,300 as monthly benefits, with contribution rate set at 2% each from employers and employees(Hong Kong Government, 1993)

    29. ii) the monthly benefit level of OAP at $2,300 is above the subsistence level of CSSA + OAA; iii) the level of saved payments in CSSA for the aged should be put into the payment accounts of OAP as reserves (Hong Kong Council of Social Service, 1993);

    30. The contribution rate be increased slightly at a later stage to guarantee balanced payments; v) Overseas experience: equal contribution rates by employees, employers & the government; Hong Kong: Role of the government?

    31. Comment on the OAP Question #1: Financial Viability of the OAP? Even with worst case scenarios, it is difficult to understand why the low level of benefits proposed would have led to significant increases in contributions. (Glenn Drover, 1995: 14); Marginal increases, perhaps but with large increases seemed unlikely unless there was a major population relocation.

    32. Comment on OAP Question #2: the OAP may lead to escalating taxes & contributions? The extent of such rise in contribution rate will depend upon the availability of other types of retirement support as well; By 2030, the MPF would have implemented for 30 years already, hence would have some effect to moderate the need for such increase. Futher actuarial calaculations by policy-makers are needed.

    33. Final Suggestions: 1. A Policy Consultative Paper on Income Protection for the Aged in HK for public consultation; 2. Is it possible to integrate i) CSSA & OAA & ii) MPF & iii) private top-up savings plans in the proposed Multi-Tier system?

    34. 3. HK needs to find effective ways to improve poverty among the aged; 4. the MPF cannot solve the retirement protection needs of present-day elders; 5. the non-contributory CSSA system faces mounting spending pressure upon hugh rise in unemployment & low-income cases.

    35. Last Appeal: 1. Public Policy-making bodies, e.g. Elderly Commission, should address this fundamental issue: the lack of effective income protection for aged people in HK; 2. Several Plans should be formulated along the Multi-tier Social Security System (World Bank) for public consultation. 3. The role of the government should be addressed in the captioned plans. ---- The End ----

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