Residual welfare model in Hong Kong
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Residual view of social welfare
Social welfare is a significant issue in a society. The social issues let us know which welfare should provide and to what extent the welfare can be provided. In fact, the ways to provide social welfare may vary between different societies. The social welfare system in Hong Kong is adopting the residual welfare model.
Hong Kong has followed the "big market, small government" ideology for many years. It is based on the idea of the residual welfare model that there is no need for the government to engage in the distribution process of social welfare. This is because people can resolve the problems themselves. The needy can find support through the market mechanism, family or the nonprofit organizations. The government will only provide support to people when the needy really can’t solve the problems themselves. Therefore, according to the "big market, small government" principle, the government holds the belief that people have the ability to get rid of the difficulties. The government is the last and temporary resort of the needy. The government can provide the immediate support to the needy. However, in the long term, the needy have to find ways to help themselves.
Due to the residual welfare model, the policies in Hong Kong are not universal. The social assistances in Hong Kong usually have the means test because the government just will help people who are under a very poor financial or living condition.
I will use the education and housing aspects in order to show that the policies in Hong Kong demonstrate the ideology of residual welfare model. For education, the government provides funding in the form of loans and grants for students who live in the low income family. The students might get full grants of their tuition fee but they should undergo the means test first. Besides, in order to protect people’s basic living need, the government launches the public housing scheme. The government provides affordable housing for low-income residents. If people want to apply for the public house, they should pass the means test in the public housing scheme. From the policies of education and public housing, we can know that Hong Kong is under the residual welfare model because every policies are not universal and they will set some requirements for people to attain which this is match the beliefs of residual welfare model. Thus, the laissez-faire style and ‘positive non- interventionism’ are regarded as two main features of Hong Kong’s policy.
Despite the education and housing policies, the retirement protection system also demonstrate the ideas of residual welfare model. The aging population problem is becoming more serious in Hong Kong. The aging population of aged 65 and above is getting increasing from 12% to 17% in 2002 to 2012 (Census and Statistics Department, 2013). Hong Kong is experiencing the aging problems over the past decade. In my following part, I will focus on the retirement protection policy within the elderly welfare system.
Three-pillar retirement protection approach
In order to deal with the aging problems, the World Bank implements the multi-pillar-model. There will be three pillar approaches toward the retirement protection system when the World Bank first times to launch the scheme. The Pillar I is a public retributive and defined-benefit system. It is so called the ‘pay as you go’ approach. Besides, the Pillar II is a private, funded and defined contribution system. Also, the Pillar III is a private, voluntary and supplementary defined contribution system (Roller, 2012). The two more pillars were added in the models later which are the Zero Pillar and Pillar IV. The Zero pillar aims to protect people’s basic need. It holds the belief that everything should undergo the process of means test. It is also related to the Pillar I because both of them are wishing to alleviate poverty. Both of them believe that all citizens should engage in the welfare process (Castells, 2010). Moreover, Pillar IV is talking about some support from family which might not be related to the money (Chou, 2009).
Even though the model of the World Bank has five pillars nowadays, Hong Kong is still adopting a three-pillar approach toward the retirement protection policy.
First, the Zero pillar exists in Hong Kong which aims to provide the basic need to the elderly. In Hong Kong, when the elderly meet the age requirement, they can receive the CSSA and Old Age Allowance (OAA). The CSSA and OAA can act as spare money for the elderly to fulfill their daily living. Second, Hong Kong has the Pillar II which the example is the MPF. If you get a job, there is no doubt that every employee has to engage in the MPF. Third, Hong Kong has the Pillar III which is related to the voluntary private savings(é›·é¼Žé³´¼Œ2011). In order to have a better living as a retired person, they might use their own savings to support their daily life.
For the retirement protection policy, we can know that the government is obeying the rule of ‘big market, small government ’. It means that the government and the other institutions also have the responsibility toward the retirement protection policy. The Means tests are the primary method for determining eligibility when applying the CSSA and Old Age Allowance. Selective cash assistances are reserved for people defined within the context of the policy as in need. Means testing is used to identify people with limited resources. This selective process determines the eligibility for welfare benefits or services so it shows the ideas of residual welfare model.
The government uses the three pillars approach in order to provide the basic need to the elderly. However, it is not problem free with the three pillars approach.
Hong Kong Council of Social Service finished a statistic about aging population last year. There are a third of people aged 65 and over are living under poverty (é›·é¼Žé³´¼Œ2011). They are regarded as very poor people among the world. Thus, people argue that if the CSSA and Old Age Allowance which the elderly rely on can really provide the basic necessities for them.
Besides, people also argue that the MPF covers only working people. Housewives and others who are not employed are not covered by the MPF. There is little difficulty in understanding that people will feel doubt that how the retirement protection of the housewives is.
Obviously, the existing retirement protection policy is trying to tackle the financial problems of the elderly. When the elderly really need help, the government can provide them with the basic need. The report from the Census and Statistics Department shows that the aging population will be increasing quickly in the coming years. The elderly aged 65 and above will increase from the 1.0 million last year to 2.6 million in 2041. This statistic suggests that by 2041, around one in three persons will be elders (Census and Statistics Department, 2013).
Thus, due to the limitations in the retirement protection policy I mentioned, there is no doubt that the government should make improvement toward the retirement protection policy.
Experiences from Taiwan
Taiwan is the same as Hong Kong that it also has the aging population and with the similar geographic background as Hong Kong. As the retirement protection policy in Taiwan is quite well developed, it can be Hong Kong’s reference when improving the retirement protection policy.
Taiwan follows the five-pillar approaches when dealing with the elderly policy. I will focus on talking about the National Pension Program in Taiwan because the other retirement protection policies in Taiwan are nearly the same as other countries. The National Pension Program aims to provide the elderly with the basic needs in their daily living. For the elders who want to apply for the National Pension Program, they ought to undergo the process of means test and there is a residency requirement that they have to pass.
In order to maintain the sustainability of the National Pension Program, the government should not pay the money to the elders in one time. They should pay the money step by step, such as monthly (Roller, 2012).
Urge for a universal retirement protection scheme
Hong Kong and Taiwan have the similarities in the reform process. However, their pension reform is very different. Taiwan implements the National Pension Program successfully whereas Hong Kong just focuses on the CSSA and Old Age Allowance.
With reference in Taiwan, some people suggest that Hong Kong ought to expand its retirement protection policy which is to introduce a retirement protection scheme which is for all citizens. This scheme is later explained by Professor Nelson Chow Wing-sun. He proposed to set up a universal retirement protection scheme in Hong Kong. In the scheme, HK$3,000 monthly pension will be given to people aged 65 and above (å‘¨æ°¸æ-°¼Œ2013 ¼‰. In order to maintain the stability of the scheme, the employers and employees need to contribute and the government would be responsible for some of the fund. This new scheme eliminates means tests and other administrative procedures because age criteria are the only eligibility to decide if you can get the pension or not.
I think that the retirement protection scheme proposed by Professor Nelson Chow has the same meaning as the National Pension Program in Taiwan because both of them focus on the people who are not in the labor market. They all want to protect these people from being poor. For the existing three pillar approach, I feel doubt of their effectiveness in meeting the needs of the elderly. With the low rates of return, the MPF can’t support people’s daily living. Thus, if the elder just rely on the MPF system, it is not rational for them. Due to the shortcoming of the three pillar approach, I have a quest for a universal retirement protection scheme as what Professor Nelson Chow proposed. However, based on Professor Chow’s proposal on universal retirement protection scheme, I think there should add the means test into the scheme. The aim of the universal retirement protection scheme is to alleviate elderly poverty. Thus, the poor people serve first. We should target on those with a genuine need and some form of means testing is necessary. There is no doubt that the elderly deserve a decent and better retirement. If we have the means-tested in the universal retirement protection scheme, some people can’t receive the public pension due to their income level. Thus, people might argue that it is not a retirement protection for all citizens so it is unfair. However, if there is no means test and everyone aged 65 or above can receive the pension, it might damage the economic development of Hong Kong and increase burden on employers.
Moreover, any retirement protection scheme without means test is regarding as ‘welfarism’. This might cause the financially infeasible for the government to shoulder the burden of a universal retirement protection scheme over time. Therefore, in order to make a good use of the universal retirement protection scheme, I suggest that there should include a means test in Professor Nelson Chow’s proposal which is the same as the Taiwan’s National Pension Program.
There is not a new thing when talking about the aging problem. Hong Kong and Taiwan have many similar characteristics toward the elderly policy. However, Taiwan developed its retirement protection policies at a faster pace. Thus, Hong Kong should learn from the Taiwan’s National Pension Program that to implement the means test in the universal retirement protection scheme.
The advantage of the scheme is that it provides the protection to the non-employees. For the existing retirement policy, such as the MPF system, it excludes the protection of the housewives. Thu, a universal retirement protection scheme can complement this problem.
Besides, for some people, they argue that the financial pressure will be mounted on working people under the universal retirement protection scheme because they have to bear the cost of the scheme. Thus, in order to make a good use of the fund, the universal retirement protection scheme should include the means test.
Moreover, the means test can act as a resource distribution. This is because the needy elders can be found and they can get help from the government.
Improvement of the three pillar approach
Many people hold the belief that it is a huge concern for the population development that one in three people will be aged 65 years old and above in the coming years. This phenomenon threatens the economic growth because there will be more people but less that are working. Thus, fewer people will contribute to the economy. If we have more elderly people in Hong Kong, it is a must to review the retirement protection policy. For our future planning of retirement protection system, Professor Nelson Chow’s universal retirement protection scheme can be one of the measures. We can’t find a model answer to tell us how to set up a good retirement protection policy due to the diversity of different countries. Despite Professor Nelson Chow’s proposal, there is essential for the government to make changes on the three approach model toward the retirement protection policy.
For the Zero pillar, CSSA and OAA act as a safety net for the needy elderly. However, there might have some problems toward the CSSA. When applying the CSSA, the elderly’s family members, such as her son or daughter, have to sign the declaration that they won’t provide financial support for the elderly. Thus, if the elderly is in bad relationship with her family members, here son or daughter might not able to sign the declaration for her. Thus, the elder can’t get the CSSA.
Also, the money in the CSSA might not be able to provide basic needs for elderly because of the inflation. Due to the inflation, we have to pay more money when buying things. In order to help the elderly during inflation, the government should adjust the money in CSSA more frequently.
In addition, we should improve the MPF system in the Pillar II. The employees should feel free to choose their MPF program due to the different sets of requirements. There should be no barriers for employees when choosing the MPF program.
Furthermore, the government ought to offer incentives to encourage voluntary savings in Pillar III. The pillar III is related to the voluntary contributions to the MPF system. In order to encourage personal savings, the government needs to provide the tax incentives for people.
For the three pillars approach, the government needs to assess the financial sustainability regularly. As suggestion before, the existing three pillars policies should be reinforced and enhanced.
Future planning of the retirement protection policy
Everyone agree that the universal retirement protection scheme is not implemented in Hong Kong for the elderly at this moment. The government only focuses on the Zero pillar. The government set some rules for the elderly to meet. If they can pass the requirements set by the government, they can get assistance. When planning the future policy for retired people, the scheme proposed by Professor Chow could be the way out. We should consider the concept of ‘responsibility’ when planning the future retirement protection policy. Hong Kong is under the residual welfare model that people solve the problems through the family and market. The government is the last way to help people. Thus, for the retirement protection policy, it is related to the concept of ‘who is responsible?’. Some people think that the old age living protection should be the responsibility of individuals and their family and not be laid on others nor should it be wholly financed by the government. Thus, the role played by the government in retirement protection policy can be different from various parties. In the perspective of limited financial resources, the government should only provide for the financially needy elderlies and not for all senior citizens.
On the contrary, with the level of Hong Kong’s economic development and the huge financial reserve, some people proposed that the government have the capacity and means to provide for basic livelihood protection for all senior citizens. The perception toward retirement protection policy will influence the role of the government.
If people link the retirement protection policy with the income, it causes heavy burden on public finance and may have influence on the economy. On the other hand, people who universal retirement protection scheme points to a kind of benefit for all senior citizens, unrelated to their past work history or salary. They hoped for the setting up of some kind of universal livelihood protection grant.
There is obvious that Hong Kong uses the three approaches toward the retirement protection policy. Many elderly received the cash assistances from the government. They still live under poverty. This might people argue that if the CSSA or other cash transfer programs are viable or not.
Nowadays, people have a higher expectation on the welfare support. They have the quests for universal retirement protection scheme. The scheme supposed to provide better protection for retired people. However, how the scheme should be implemented is still under a negotiation process. There are many things we have to decide when implementing the scheme, such as to undergo the means test or not. The universal retirement protection in Taiwan implement in a very successful way. Even some people claim that Hong Kong is better developed than Taiwan, we still should learn from Taiwan’s experience and decide how to initiate a universal retirement protection scheme. We should launch the scheme according to the specific features of Hong Kong.
In fact, some people claim that the political environment affect the implement of the retirement protection scheme. This is related to people‘s conservativeness toward a policy. Thus, we should be aware of the political issues when designing the retirement protection policy. The retirement protection policy is a very complicated subject which affects all HongKonger and has far-reaching impact on the fiscal sustainability in Hong Kong. In order to find a suitable way of the development toward retirement protection policy, people should clarify the concept which is related to ‘responsibility’.
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Castells, M. (2010), The Shek Kip Mei Syndrome:
EconomicDevelopment and Public Housing Development in Hong Kong and Singapore, UK. Pion Ltd.
Census and Statistics Department (2013), Hong Kong Special Administrative Region
Chou, L.K. (2009). “Retirement Income Protection in Hong Kong”. Ageing in East Asia Challenges and Policies for the Twenty-first century (pp. 105-137). London: Routledge.
Roller, E. (2012). The welfare state: the equality dimension. The scope of government, New York: Oxford University Press.
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