Debating Real Issues

There are many reasons why the recent filibuster by some LegCo Members over the 2113 Budget was a very bad idea, but the most important one is that it brought into disrepute the very policy they claimed to be fighting for: a Universal Pension.

There are two key issues that the community needs to debate: whether a Universal Pension is affordable, and whether it is the right thing to do in principle.

These are the things we should be talking about, not whether the government will grind to a halt if the Budget is not approved in the next few days (it won't) or whether there is scope to trim the expenditure of some departments (there probably is, but a few hours debate is not going to find it).

Let us assess affordability first, because some people who oppose a scheme in principle hide behind the alleged lack of money in order to obscure their real position.

In order to do so we need to make some heroic assumptions. Start by assuming that the general retirement age should be raised to 65 as quickly as reasonably possible. Then take it that the existing fruit money plus personal savings and family support can take our elders through to their 70th birthday.

So our Universal Pension scheme kicks in when a permanent resident reaches the proverbial three score years and ten.

Next we need to select an amount which while not generous should just about cover essentials. For illustration purposes I'm going to go with $6,000 per month.

Extrapolating from the 2008 census data (and assuming everyone counted then has lived five more years) there are about 780,000 persons that our new Pensions Authority will need to pay out to, let's round up to 800,000 to allow a margin for error.

A back of the envelope calculation suggests we are looking for $4.8 billion per month or almost $58 billion a year. These are very large sums indeed, where are we going to find them?

Obviously people of working age are going to have to chip in the bulk of it. The same census data gives us over 4.8 million people between the ages of 20 and 64. So if they each contributed (or someone contributed on their behalf) $1,000 per month the income of the Pensions Authority would equal or exceed the amount it had to pay out.

All persons in regular employment could afford this sum (or their employer could pay it on their behalf). In fact it is much less than contributors to the MPF scheme (which should be scrapped) are already paying. Ways would have to be found to make other economically active persons (for example company directors or independent contractors) who might evade making MPF contributions also chip in.

Every effort should be made to reduce the number of non-payers but still at the end of the day there would be a significant number whose share would have to be paid from general revenue. However the sums involved would not be as alarming as the eye-catching figures quoted earlier.

There can be a lot of debate around the fringes (is 20 the right age to start contributing or should it be lowered to 18; is 70 the right age to start drawing; is $1,000 the right amount to pay in or could it be higher; is $6,000 the right amount for the pension) but the main conclusion is that if there is the political will and community consensus then it is possible to put together a scheme that is affordable.

So we come to the issue of principle: should we?

Many will be uncomfortable with the idea that a universal scheme breaks the link between what people pay in and what they can get out. Those who die before they reach 70 will have paid in for many years and got nothing out for themselves (or their heirs). Others will not have paid in a single dollar but will draw out for many years. Is this just?

The absence of means testing will offend purists. On the other hand, the way such testing is conducted at the moment is labour intensive, inefficient, inaccurate and demeaning to the beneficiaries.

Will we have engendered an entitlement culture, is this the thin end of the wedge which will lead to higher taxes and a welfare state?

These are very important issues, and this is what we should as a community be discussing. But we are not, we don't have the time or energy because of this daft filibuster.

Mike Rowse