Elderly Poverty
Hong Kong faces the prospect of a tsunami of elderly poverty sweeping over our society in coming decades. The question is what to do about it. The good news is that there are responses which can reduce the severity of the problem. The bad news is that these will take time to be effective so we need to start work on them right away.
An important signal of the severity of the situation was provided by a recent study jointly conducted by the Hong Kong Retirement Schemes Association and a prominent pension consultant. The outcome was reported in this newspaper under the headline “Residents Millions Short in Pensions” which is a good summary of the main findings. It reported average Mandatory Provident Fund balances of a little over $300,000 which compares with the millions which would be required to sustain a reasonable standard of living over a long period. The study made a number of recommendations to encourage greater savings.
It is easy to be a little cynical about the outcome of studies conducted by or on behalf of those with a vested interest in the outcome. And some of the findings need to be seen in context. For example the average savings figure will include many people who have only recently started work and have not had time to accumulate greater sums. More relevant would be the average for those on the cusp of retirement. But even allowing for these caveats, the situation looks grim.
The first thing that needs to be examined is our assessment of what constitutes a reasonable retirement age. People everywhere are living longer, particularly in our city which has one of the longest life expectancies on the planet. This is a tribute to our collective efforts on creating a healthy living environment, but it has consequences for when it is reasonable to expect to stop work which we have yet to grasp.
The study uses 65 as a relevant benchmark which seems to accord with accepted local opinion, but it is surely time to challenge that assumption. If we are living on average to 85 or more then it is simply not practicable to plan on the basis of 20 years of leisure at the end of normal working life. We should be nudging the mindset of both employers and employees towards 70 or even higher. One of the reasons I have been such a strident critic of the decision to lower the qualifying age for the $2 transport fare subsidy scheme from 65 to 60 is that it shows the government rowing completely in the wrong direction.
Reassessing appropriate retirement ages will require considerable efforts in re-examining the structure of work. For example if an eight-hour driving shift is too long for an older driver, can it be re-engineered into two four-hour shifts with a longer break in between? A firefighter at the scene of a blaze must be fit to climb the stairs and strong enough to carry citizens to safety. The fireman sitting in an office studying building plans to ensure adequate means of escape can have a different fitness level. A police officer confronting violent criminals on the street has one set of requirements, a fraud detective in an office with spreadsheets and a computer a different set.
I am not sure individuals need much incentive to continue working past 65. Employment gives both income and dignity. Many resent being laid off at the employer’s behest. Whereas the study proposed tax benefits to encourage greater MPF contributions, in my view this would just benefit those already comparatively better off. It would surely be better to reward the individual directly, say by taxing income for those who work from 65 – 75 at half the normal rate and making income for those over 75 completely tax free. With a suitable change to the law they could also thereby contribute to their MPF accounts for longer.
Employers present a much bigger mindset challenge. Instinctively they tend to prefer younger employees as a general rule; once trained they can provide useful service for longer, hence contributing to profitability. There is a stronger case for tax incentives here in order to alter the balance of advantage and perhaps more scope for creativity in how we structure them. Could the employer deduct the actual salary of an older worker at 150 per cent for the purpose of the business’ profit and loss accounts? That might encourage more flexible staffing arrangements, say four seniors at $15,000 salary to replace three younger workers at $20,000 to compensate for slightly lower output; the same total wage bill but with a bigger tax saving for the owner.
The recent changes to the scheme for importation of labour, introducing a two-tier structure for some occupations, offer another area worth exploring. Where the employer must now engage two or three local employees for every imported worker he wishes to hire, could we also introduce a minimum ratio of older workers among the local qualifying quota? Just a suggestion. There will be practical difficulties but once we get the incentive package right, creative employers will find ways to overcome them.
The government recently introduced changes to the way it calculates poverty levels to take account of such things as public housing, mostly free education of children and heavily subsidised health care. The measures have aroused some controversy among those in the field. I will leave the public debate in the hands of those involved. Suffice for me to point out an individual can have his house, his educated children and his health care and be grateful for all of them. But he still needs to put food on the table.