UM scholar: Gov’t should better explain goal for sustaining Social Security Fund

The government ought to clearly spell out the target it plans to lower its input to for the Social Security Fund (FSS) an academic says. University of Macau assistant professor of public administration Chan Kin Sun says the city’s basic pension benefits and several allowances have traditionally been too reliant upon government income. Employer and employee parties should seek to better understand each other’s position, the chairman of Macau Social Security Society added What is your view of the government’s current financial support of Social Security Fund income, which mainly relies on appropriation from gaming income, one per cent of a yearly fiscal budget, and a special injection of MOP37 billion for 2013 – 2016? When talking about the system for pension benefits and social security, the International Monetary Fund (IMF) always stresses that it can be built through five tiers: tier zero can be defined as social assistance. In Macau, this would be our minimum subsistence index that supports the government’s aid to the poverty groups. For giving this aid, there is asset screening for an individual. Tier one is what we define as a basic retirement plan or pension benefits supported by a pay-as-you-go scheme. Tier two, meanwhile, means that pension benefits are supported by occupational savings, which are usually compulsory. Tier three is the reliance upon personal savings of which the pattern varies for each individual, while tier four is what we say a family and societal support for retirement needs. In this context, Macau’s Social Security Fund is playing a role similar to tier one. But here, there is still not yet a smooth transition from a voluntary occupational saving contribution to our Social Security Fund to a compulsory scheme. According to what the government said in an actuarial report in 2013, the fund could last for 50 years with the existing operation mode of Social Security Fund. This is actually quite okay: imagine a person of 20 to 30 years old now, his or her pension payout is still well covered when reaching 70 – 80 years old. As a citywide pension protection [scheme] I can’t see the system needs a change very urgently. But now the government wants to change people’s impression that the fund is offering a low pension benefit with very low contribution from employers and employees. An individual here, who contributes to the fund for thirty years, can pretty much get back what he has contributed in two years’ time when he retires – from this we have excluded the calculation of interest. The government has really allocated a lot to the fund, where some 90 per cent comes from its input. And looking at the fund, another hidden risk is that aside from the expenses of the fund in supporting the pension, the whole fund is also supporting the disabilities allowance, unemployment allowance, and even birth allowance. In the past decade or so, we’ve had a good economy and much attention has been on the support of the pension. But when the economy worsens and there is a higher unemployment rate, and there are more industrial accidents resulting from the large amount of infrastructure projects going on, I will be concerned about the respective increase in allowances for unemployment and disabilities. So you’re saying that you’re concerned that the existing Social Security Fund system may not be able to cope with the possible rises in future unemployment? I’d say that the discussions the community here has had are all concentrated on pension coverage. Looking at pension benefits, with the government’s actuarial report having pointed out that the fund can support them for 50 years, I don’t think there is a big problem there. But for the potential increase in expenses for the unemployment allowance and for disabilities, there is still not much discussion within government or society on this aspect, which has to be explored more. Do you think that the government has done enough in supporting the living of the elderly here, including the pension, other allowance coverage and the social services for them? There are several [social welfare] systems that have not seen a long-term mechanism yet: for instance, the government’s instalment of the Social Security Fund, and its support for the special living allowance for the elderly, aside from paying them a pension. Using what mechanism does the government decide the amount of pension payout and the allowance paid to the elderly? When the beneficiaries do not understand this mechanism very well and how the amount is being adjusted, they will not trust the fund. I agree with some public opinions doubting whether the current pension level at three thousand something patacas can suffice the needs of the elderly. But we also have to consider the issue from another angle – one that is not only limited to the pension system but the other supporting services for the living of the elderly. I think the government ought to consider how to empower or facilitate the families here in building up a more comprehensive care service for the elderly. The provident fund system that the government is trying to build up now is also a pivot for supporting the elderly – although it is more of a basic protection for them. And on top of that, a mainstream investment tool for the older people here is in property, as most Chinese do. So, another direction we can consider is for those who lack cash but have assets how we can turn the assets into money for the elderly to alleviate their living expenses. A few years ago, the Hong Kong Government introduced the Reverse Mortgage Programme, which incorporates the mortgage into a payout for the elderly. That allows them to cash in their assets to deal with their living expenses. This is actually a viable option we can consider, although that will also involve the co-ordination of the Monetary Authority of Macau because the nature of the programme is beyond the governing scope of the Social Security Fund. Should the government change the current mechanism or structure of the Standing Committee for the Co-ordination of Social Affairs as the employer and employee parties are deadlocked over the contribution issue? I would say the committee is still an important communication platform for forming policy. But both the employer and the employee party should seek to better understand each other’s position and pressures. The employer party has the consideration that aside from the contribution to the Social Security Fund they have to pay more to the provident fund system in future as well. And the provident fund system will turn compulsory one day. When all of these translate into higher staff costs it will impose a significant impact upon the employers’ company operations. I think this is a consideration that the employee party is still not very well aware of. And for the employer party, they also need to consider the employees’ pressure of living costs. Now, a bad situation is that our contribution to the Social Security Fund is not in reasonable proportion to the payout of the pension. The government has had many actuarial reports pointing that out, too. As of now, about 90 per cent of the expenses of the Social Security Fund come from the government, so can it tell at which level the government’s existing support of the fund should be lowered? They have to decide upon a direction for controlling its appropriation for the fund. Another important income source for the Social Security Fund is the tax on non-resident workers, which even exceeds the contribution from local employers and employees. The tax is now levied on the employer at MOP200 per non-resident worker employed. So this is also an aspect society can consider in resolving the contribution issue for the fund. What incentives do you think the government should offer to fast-track the consensus amongst employers and employees over an increased contribution to the fund? What should be considered is how the pension payout can be better supported by the contribution [from employers and employees]. In a study that we [Macau Social Security Society] did, we found that residents here are supportive of the concept of gaining more returns from the fund by making more contributions. On the other hand, the government can also think of extending the age for getting the pension, while encouraging them [the elderly] to continue to contribute more to the fund. There are some positions in here that are restricted to residents only, such as taxi drivers. And these drivers are usually older people. While the government does not plan to import labour for the driver jobs, they can consider extending their age for getting a pension while offering them incentives to continue to contribute to the Social Security Fund. In that way it also helps to release the labour pool. Do you think a contribution lump-sum amount of 45 patacas per month from the employer and employee parties for all industries to support the fund is a better way than a multi-tier contribution amount set according to the type of industry? A multi-tier system can induce more inequality issues. For instance, Taiwan’s case is that the proportion of civil servants, military officers and teachers contributing to labour insurance is lower than other labour, but the government is shouldering more of the insurance coverage for the civil servants, military and teachers. And that incites criticisms that the government has been tilting too many resources to the civil service system. In Mainland China, there has also been discussion about whether the pension system for civil servants should be on a par with private companies. The government there has largely sponsored the civil servants. The rest of the public question the gap of the pension coverage they have when compared to the civil servants. I think that the contribution lump-sum that the local government imposes is reasonable, but how well this contribution system can be sustained is another issue and I think it can be further adjusted. However, the argument in society over the contribution issue has been too much narrowed on the contribution ratio by the employer and employee parties, and the amount. What is your view on the current advance withdrawal system for pensions, which says residents aged 60 to 64 can have the payout but will have their pension discounted by 25 per cent and can get the remaining full amount of the pension when they turn 80 years old? There have been some saying before that this group getting the advance payout has lost a lot compared to the 65-year olds or the older group. The news last year citing an actuarial report [conducted by Towers Watson] said that the proportion of 60-year olds getting the advance withdrawal of pension should be 72 per cent, but in the city the proportion has been 75 per cent. For a pension fund, we always emphasise the actuarial equivalency – that we have to protect those that get the pension at the age the law stipulates [which is 65 year old in Macau] or else we are just encouraging early retirement. On issues like this advance withdrawal of pension, I think the government can explain more effectively the calculations involved, which of course involve complex mathematics. The government can definitely do better in publicising their policy.