Diversity and Occasional Anarchy: On Deep Economic and Social Contradictions in Hong Kong

20: Economic Consequences of Universal Old Age Social Pensions

20 Economic Consequences of Universal Old Age Social Pensions In my previous essay, I calculated the long-term costs of various meanstested old age social security support programs proposed by Mr. Leung Chun Ying, Mr. Henry Tang, and Professor Chow Wing-sun. I compared their proposals against the present arrangement that combines two programs: the Comprehensive Social Security Old Age Assistance Scheme (CSSA) and the Social Security Old Age Allowance (SSA). The three proposed programs are means tested rather than universal social pension schemes. In this essay, I provide estimates of what it would cost in the long term to have a universal social pension scheme that gives each individual over the age of 65 a fixed monthly payment. In making these calculations, I follow the same approach as I did in my previous essay and make the following assumptions: First, labor productivity will continue to rise at an annual constant rate in the future. Specifically, I assume that real GDP per working population will rise by 4% per year. Second, I base my calculations on two sets of population forecasts. The Hong Kong Census and Statistics Department (C&SD) forecasts future population up to 2039. The United Nations (UN) forecasts future population up to 2100. Both sets of forecasts project the elderly population to peak in the middle of the twenty-first century. The UN forecasts a lower rate of population growth than the C&SD. Third, I assume that the value of old age monthly social security payments will grow at the rate of GDP per capita, which implies they will rise with the average rate of improvement in the standard of living. Using the first two assumptions, I calculate the implied real GDP and real GDP per capita growth rates for the two forecasted periods. The results are given in Table 20.1. I then use all three assumptions to estimate the percentage 190 Contradictions in Quality of Life Issues shares of old age social security payments in GDP over time under the various actual and proposed schemes. Alarmingly Low Population Growth Rate In Figures 20.1 and 20.2, I plot these percentage shares over time using the projected population figures from the C&SD and UN, respectively. From Figure 20.1, we observe that the old age social welfare expenditures under each of these schemes rise rapidly from 2011 until 2040. The existing CSSA and SSA schemes are the least expensive. Mr. Leung’s proposal is more expensive, Mr. Tang’s scheme is even more expensive, and Professor Chow’s scheme, which drops the “bad son statement” requirement, is the most expensive. Between 2011 and 2039, the expenditure required for each of these schemes as a percentage of real GDP will approximately double. Figure 20.2, using UN projections, shows that the percentage shares begin to level off after 2040 and start to decrease a little after 2060. Between 2010 and 2040, the expenditure of all these schemes will increase approximately 1.5 times as a percentage of real GDP due to the growing proportion of elderly people in the population as a whole. Indeed, higher old age social security expenditure will persist until 2100 because of the very low rate of population growth. Between 2010 and 2100, the population is projected to grow by only 0.4% per year. The working population growth rate is even worse, at 0.05% per year. Our population growth is reaching alarmingly low levels. I next calculate expenditure based on a number of hypothetical universal non-means-tested pension schemes. These are schemes where any person over the age of 65 will be paid a fixed monthly payment until death. I assume that Table 20.1 Population, working population, and real GDP (annual percentage growth) 2011–2039 2010–2100 Total population 0.8 0.4 Working population 0.1 0.05 Real GDP per working population 4.0 4.0 Real GDP 4.2 4.0 Real GDP per capita 3.3 3.6 Economic Consequences of Universal Old Age Social Pensions 191 Figure 20.1 Estimated old age social security expenditures as a percentage of GPD, 2010–2100 Figure 20.2 Estimated old age social security expenditures as a percentage of GPD, 2010–2039 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 2085 2090...