Can pensions soften the blow of an ageing population to Hong Kong’s economy?

Can pensions soften the blow of an ageing population to Hong Kong’s economy?

Legislator “Long Hair” Leung Kwok-hung and 13 other pan-democratic lawmakers proposed a universal pension scheme and are holding a record marathon filibuster to extend parliamentary debate until next month.

Pensions are fixed payments given to retirees, who contribute part of their salary while working. Usually, they provide tax relief and employer or government contribution to increase future income. Currently, Hong Kong only provides a Mandatory Provident Fund (MPF), which only covers a few employers.

Hong Kong’s ageing population, caused by longer life expectancy and lower birth rates, puts extra pressure on MPF capabilities which will struggle to fund incomes for more retirees with contributions from fewer workers.

To cater to more dependants, Long Hair proposes increasing pension capacity by increasing the size of payouts and the number of pensioners. A universal pension scheme would reduce poverty, inequality and related problems but could cost taxpayers money if there are not enough workers to fund larger numbers of retirees.

Given the lack of alternatives to keep consumption high, a pension scheme is an ideal use of the government’s mass of free cash reserves. The proposed pension scheme would only take a miniscule bite out of the reserves and should also bring more benefits than increasingly unnecessary colossal infrastructure projects.

The management costs of pension fund investors should reduce, while performance improves as many funds recently failed to beat the overall stock market return.

The retirement age was recently grudgingly increased to reduce the number of dependants and ease pension demands. Pensions also redistribute money to the poor elderly which will boost consumption as they are more likely to spend, rather than save.

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