Universal pension plan would create more problems than it fixes

With an ageing population and a declining workforce in Hong Kong, any universal pension scheme will place a huge financial burden on young people.

It seems ironic that, on the one hand, some are calling for such a scheme because the population is ageing fast and many old people will have no one to take care of them. Yet, on the other hand, we can foresee that the scheme would be financially unsustainable. So, why should we set up a universal pension scheme?

Don't get me wrong, the business community is willing to help people in need and often work hand in hand with local organisations to help the less privileged.

The question we are all facing is not why we can't alleviate old age poverty, but how it could be done, especially in making sure that a system does not create more problems than it seeks to solve.

The ageing population and decades of low fertility rates will lead to a shrinking workforce after 2018; fewer people will contribute to a universal pension, if there is one. According to the calculations by academic Nelson Chow Wing-sun, the pension scheme would record a deficit from 2026 onwards, which means the pension pool would collect less money than it pays out, and could not be sustained after 2041.

Of greater concern is how the pension scheme would affect our young people. If, for example, a pension fund was put in place, almost all retirees would immediately become beneficiaries of the scheme to which they had not contributed. It would be today's workforce that is footing the bill. And when part of the current workforce retires in a decade or so, one generation's contributions will have to pay for two generations' benefits.

One may ask, then, if the universal pension scheme is not viable, how come the US and some European countries have had such schemes for decades? In fact, the schemes have caused them tremendous headaches, since the ratio of contributors to beneficiaries has fallen, with the ageing population. Some nations have resorted to imposing taxes, raising the age of eligibility and/or reducing the amount of pension the elderly receive.

In Hong Kong, further taxes on companies or payrolls may be required to fund the scheme. However, this could damage the economy. The city needs to maintain a low-tax environment to remain competitive. Any extra taxes could spark a vicious cycle of falling consumer spending and rising unemployment, which would cause contributions from employers or employees to fall further and affect the pension reserve.

Chow said that a proposed HK$3,000 monthly pension for each Hongkonger aged over 65 could be reduced if the scheme proved unsustainable. But once you make a decision, really, there's no turning back. All over the US, from Detroit and Maine to California, attempts to cut pensions have triggered strong opposition. Yet, even now, some in Hong Kong are calling for a higher monthly amount of HK$4,000 or above.

Chow has said that the middle class would benefit most from the pension plan. I disagree.

Recently, I talked to some middle-class Americans in their 40s who have contributed to their social security scheme for 20 years. They said they hoped the scheme would end immediately, even though they'd lose the money they had paid in. "With limited resources given to all, the funds amount to empty promises and our young folks are going to pay more than they will receive," said one.

Allocated pensions are neither guaranteed nor key to a comfortable retirement. Society, particularly the young, must take responsibility and think what they can do to meet their needs in later life.