DOI: 10.1111/ijsw.
12321
Int J Soc Welfare 2018: 28: 89–99
Poverty alleviation, coverage and fiscal
sustainability: Investigating the effect of a
new social pension in Hong Kong
K€uhner S., Chou K-L. Poverty alleviation, coverage and fis-
cal sustainability: Investigating the effect of a new social
pension in Hong Kong
This article synthesises the characteristics of social pensions
across Asia and evaluates the effect of a new social pension
in the Hong Kong SAR, the Old Age Living Allowance
(OALA), on poverty alleviation, coverage rates and fiscal
sustainability. We found that the effectiveness of the OALA
in reducing old-age poverty was limited, although it has led
to an increase of retirement pension coverage by 6%. The
OALA is projected to face substantial cost increases in the
medium and longer term. Increasing the level of OALA
benefits would be a direct means to enhance its poverty
alleviation effect but may potentially be hampered by
concerns about the fiscal sustainability of such changes. More
obfuscated alternatives for Hong Kong policy makers to
affect old-age poverty alleviation include adjusting the
indexing rules of benefit level payments and the eligibility
criteria to reduce the stigma attached to the current policy
choices.
Social pensions are non-contributory cash transfers
paid to older-aged people on a regular basis. They
have been shown to be an effective policy measure to
reduce old-age poverty and pension coverage gaps,
and thus to address the major shortcomings of contrib-
utory pension schemes in middle-income countries
(Holzmann, Robalino, & Takayama, 2009), low-
income countries in Latin America (Barrientos et al.,
2003; Bertranou & Grushka, 2002; Schwarzer &
Querino, 2002), in Africa (Gassmann & Behrendt,
2006; Kakwani & Subbarao, 2007), as well as rich
economies in the European Union (Figari, Matsaganis,
& Sutherland, 2013). At the same time, concerns about
the fiscal sustainability of social pensions have led to
controversial debates on the strengths and limitations
of specific policy structures in the context of varying
demographic profiles and political contexts
(Commission on Poverty, 2015a, 2017; Klugman
et al., 2017).
In 2013, the government of the Hong Kong
Special Administrative Region (henceforth: Hong
Kong) put forth a new tax-funded, means-tested, non-
contributory social pension, the so-called Old Age
Living Allowance (OALA), for older people aged 65
and above. It thereby followed 22 other economies
Int J Soc Welfare 2018: 28: 89–99
© 2018 The Authors. International Journal of Social Welfare © 2018 Akademikerförbundet SSR (ASSR) and John Wiley & Sons Ltd
INTERNATIONAL
JOURNAL OF
SOCIAL WELFARE
ISSN 1369-6866
1
Stefan K€uhner , Kee-Lee Chou2
1
Department of Sociology and Social Policy, Lingnan
University, Hong Kong
2
Department of Asian and Policy Studies, The Educational
University of Hong Kong, Hong Kong
Key words: social pension, old-age poverty, pension
coverage, pension sustainability, older people, Hong Kong
Dr. Stefan Ku €hner, Department of Sociology and Social
Policy, Lingnan University, Room 211, 2/F Dorothy Y.L.
Wong Building, 8 Castle Peak Road, Tuen Mun, Hong Kong.
E-mail: stefankuehner@LN.edu.hk
Accepted for publication 2 March 2018
across Asia that had already introduced some form of
social pension to provide social protection to their
rapidly ageing populations (HelpAge International,
2017). This article contributes to the growing litera-
ture on the economic well-being of older people
(Smeeding, 2003; Smeeding & Sandstrom, 2005) by
using secondary observational data from four rounds
of the Hong Kong General Household Survey (GHS;
Census and Statistics Department, 2017) in order to
evaluate the effect of the OALA on old-age poverty
rates, coverage rates and financial sustainability.
Hong Kong is one of the fastest aging societies in
the Asia-Pacific (United Nations, 2017) and our find-
ings shed light on the specific policy levers by which
policy makers could potentially respond to persistent
old-age poverty, coverage gaps, as well as the fiscal
and political concerns about the sustainability of their
social pensions.
The article is structured as follows. First, we
review the current trends of social pension develop-
ment across Asia, its key structural characteristics
and current fiscal costs to provide a broader context
for studying the Hong Kong case. Second, we briefly
outline the current retirement pension system in Hong
Kong. Third, we investigate the poverty alleviation
89
1
K€
uhner & Chou
effects of the OALA, discuss its immediate impact on
coverage rates in Hong Kong and present macro-
projections on the future costs of the OALA along-
side other zero pillar pension programmes in Hong
Kong. Fourth, we discuss our main findings and sug-
gest a series of policy-related findings to zero pillar
pension outcomes in Hong Kong, before discussing
some of the limitations of the chosen methods and
available data sources. We conclude by suggesting
potential avenues for further research.
Comparing social pensions across Asia
Social pensions are government-provided, tax-funded,
non-contributory cash transfers that are regularly paid
to older people during retirement. They are concep-
tualised as the zero pillar in the World Bank’s frame-
work of pension systems designed primarily to
ensure absolute minimum living standards during
retirement age (HelpAge International, 2017). Three
types of public zero pillar schemes are commonly
distinguished. First, means-tested schemes aim to pro-
vide targeted benefits to poor pensioners, and entitle-
ment to benefits depends on means tests. Second,
universal basic pension schemes provide flat-rate ben-
efits based on social citizenship criteria, although the
calculation of benefits may still be based on previous
years of work. Third, minimum pensions share many
features with means-tested plans, but entitled benefit
payments depend on pension income rather than
income from savings or assets (OECD, 2015).
Zero pillar pensions work alongside additional
tiers and pillars of retirement systems. In the second
tier, public-, employer-/social-, partner-sponsored or
individual/household retirement plans aim to maintain
previous living standards after retirement through
earnings-related benefits following a contribution
record. Defined-benefit (DB) plans can be provided
by the state or by occupational schemes, and the level
of benefits depends on the person’s contribution
record and individual earnings. In contrast, defined-
contribution (DC) plans are either compulsory or vol-
untary, and the accumulated contribution and invest-
ment returns will convert into a pension income after
retirement. Notional DC plans are positioned some-
where between DB and DC plans in the sense that
the returns that individual contribution records earn
are set by the government, for example by using a
formula based on life expectancy, rather than on
investment returns in the markets alone. Lastly, the
third pillar is comprised of various insurance products
and collective investment plans, typically in order to
‘top up’ retirement incomes. Investment saving plans
provided by employers to high-skilled employees, or
voluntary personal saving plans provided by financial
institutions are the most common examples, while
920 © 2018 The Authors. International Journal of Social Welfare © 2018 Akademikerförbundet SSR (ASSR) and John Wiley & Sons Ltd
individual investment and saving plans, housing
assets and family support also belong to this
category.
New Zealand was the first country in the Asia-
Pacific region to introduce a social pension, in 1898,
followed by Australia in 1900 (Palacios &
Knox-Vydmanov, 2014). Initially, the schemes in
both countries were means-tested and featured com-
paratively low levels of benefits. In 1940, however,
the social pension in New Zealand was made univer-
sal, whereas Australia witnessed a substantial increase
in the benefit level during the 1930s (Lindert, 2004).
In the 1980s, Brunei and Malaysia introduced a
social pension scheme, followed by another six coun-
tries (Bangladesh, India, Kyrgyzstan, Mongolia,
Nepal and Thailand), representing a rapid expansion
of social pensions in South Asia in the 1990s
(Begum & Wesumperuma, 2012; ISSA, 2013;
NEPAN, 2011). The period between 2000 and 2011
represents another peak period in social pension pro-
vision, with eight additional East and South East
Asian economies implementing this form of social
protection for their older-aged populations (Taiwan,
South Korea, China, Vietnam, Indonesia, Maldives,
the Philippines and Timor-Leste) (Suwanrada &
Dharmapriya, 2012; UNHRC, 2010).
Social pensions in Asia vary in terms of their
broader policy goals. Social pension schemes in
Bangladesh, India, Myanmar and Vietnam are anti-
poverty programmes, whereas schemes in South
Korea and Thailand, similar to that of Hong Kong,
primarily aim to address coverage gaps due to imma-
ture contributory programmes (Palacios, 2016). In
other cases, including Australia, New Zealand, the
Maldives and Timor-Leste, social pensions present
the main component of the retirement pension sys-
tem. It is therefore not surprising that social pensions
in Asia vary considerably regarding their benefit lev-
els, targeting methods, eligibility criteria, coverage
and fiscal costs (see Table 1).
The benefit levels of social pensions have remained
quite low but vary between 34% in New Zealand and
1% of the national average per capita income in China.
About half of the social pension schemes across Asia
are universal, whereas the other half are means-tested.
The age of eligibility varies from 55 for women in
Mongolia to 77 in the Philippines. The coverage rate,
measured as the percentage of people aged 60 or above
receiving a social pension, ranges from 1 and 2% in
Moldova and Vietnam, respectively, to 100% in
Timor-Leste. The fiscal cost in relation to the size of
the local economies is generally below 1%, with only
Australia and New Zealand exceeding 2 and 3%,
respectively.
In addition to demographic factors, such as pro-
jected birth rates and old-age dependency ratios, it is
Int J Soc Welfare 2018: 28: 89–99
 Table 1. Characteristics of social pensions in Asia (ordered by benefit level), 2017.

Int J Soc Welfare 2018: 28: 89–99

Country Name Year of Current benefit Targeting method Eligible age Coverage Fiscal cost
establishment level (% of the (means-tested (percentage of (% of GDP)
average per or universal) people aged 60 or
capita income) above receiving a
social pension)

1. New Zealand Superannuation 1898 34 Universal 65 69 3.867

2. Australia Age pension 1900 26 Means-tested 65 51 2.230
3. Maldives Old-age basic pension 2010 21 Universal 65 68 1.027
4. Kyrgyzstan Social assistance allowance 1999 17 Universal M: 63; W: 58 — —
5. Israel Special old-age benefits — 13 Means-tested M: 65–67; W: 60–64 — —
6. Nepal Old-age allowance 1995 12 Universal 70 31 0.032
7. Tajikistan Old-age pension — 12 Universal M: 65; W: 60 24 —
8. Malaysia Elderly assistance scheme 1982 10 Means-tested 60 6 0.043
9. Indonesia Elderly social security programme 2006 9 Means-tested 70 (60 if chronically ill) 0 0.0001
10. Timor-Leste Support allowance for older people 2008 7 Universal 60 100 0.525
11. Turkmenistan Social allowance — 7 Universal M: 62; W: 57 — —
12. Brunei Old-age pension 1984 6 Universal 60 86 0.024
13. Mongolia Social welfare pension 1997 6 Means-tested M: 60; W: 55 2 0.022
14. Taiwan Old-age basic guaranteed pension 2008 6 Means-tested 65 16 0.178
15. Bangladesh Old-age allowance 1998 5 Means-tested M: 65; W: 62 24 0.080
16. Philippines Social pension 2011 5 Means-tested 77 4 0.027
17. Vietnam Social assistance benefit 2004 5 Means-tested 60 2 0.010
18. Moldova State social allocation for aged persons 1999 4 Universal M: 62; W: 57 1 0.124
19. South Korea Basic old-age pension 2007 4 Means-tested 65 50 0.295
20. Thailand Old-age allowance 1993 4 Universal 60 64 0.324
21. India Indira Gandhi National old-age pension scheme 1995 2 Means-tested 60 16 0.032
22. China Rural social pension 2009 1 Universal (requires 60 48 0.113
children contribution)

Source: Pension watch at http://www.pension-watch.net/about-social-pensions/about-social-pensions/social-pensions-database [accessed 18/10/2017].

© 2018 The Authors. International Journal of Social Welfare © 2018 Akademikerförbundet SSR (ASSR) and John Wiley & Sons Ltd
Introducing a social pension in Hong Kong

3
91
K€
uhner & Chou
these structural features of social pensions that –
together with the depth of the local poverty gap, tar-
geting efficiency and administrative costs – determine
the fiscal sustainability of social pensions. Recent
projections of the cost of social pensions across Asia
have suggested that these will roughly double, to
reach between 1.4 and 2.6% of GDP in South Asia
and East Asia, respectively, during the period
between 2010 and 2040 (Asher, 2012; Palacios &
Sluchynsky, 2006). At the lower end, for example in
Thailand, the estimated fiscal cost of social pensions
was suggested to increase from 0.59% in 2012 to
0.98% of GDP in 2040 (Jitsuchon, Skoufias, &
Wiener, 2012). At the higher end, for example in
Australia, the estimated fiscal cost of the social pen-
sion was projected to rise to 3.9% of GDP by 2050
(Bateman & Piggott, 2011).
Given this wide range of structural characteristics
and the ensuing fiscal sustainability of social pensions
across Asia, the next section evaluates more specifi-
cally the effect of a newly implemented social
pension in Hong Kong, the so-called OALA, on old-
age poverty rates, coverage rates and financial
sustainability. Before doing so, however, it is worth-
while to introduce readers to the particularities of the
Hong Kong retirement pension system first.
The retirement pension system in Hong Kong
Hong Kong’s social welfare system has been concep-
tualised as ‘productivist’, meaning social develop-
ment is subordinated to the primary policy objective
of achieving economic growth (Mok, K€uhner, &
Yeates, 2017). Productivist welfare regimes feature
relatively small redistributive and poverty alleviation
effects of social protection programmes, although
means-tested benefits tend to predominate (Chan,
2011; Holliday, 2000). This ‘paradox of redistribu-
tion’ is commonly explained by the lower levels of
fiscal investment into purely means-tested welfare
programmes compared with those based on earnings-
related or universal principles (Korpi & Palme,
1998). Welfare systems across Greater China and
East Asia, with the exception of Japan, have com-
monly been characterised as ‘welfare laggards’ in
regard to their public and mandatory private spending
on protective welfare policies relative to their level of
economic development (Hudson, K€uhner, & Yang,
2014; K€ uhner, 2015). Similarly, research on the
retirement pension system in Hong Kong has
emphasised that securing a sufficient retirement
income is regarded primarily as a matter of individual
responsibility, which is to be supported by family
members when incomes fall short of meeting the
needs of older people during retirement (Chou, Chi,
& Chow, 2004).
942 © 2018 The Authors. International Journal of Social Welfare © 2018 Akademikerförbundet SSR (ASSR) and John Wiley & Sons Ltd
By the year 2000, the Mandatory Provident Fund
(MPF) scheme, which provides compulsory, privately
managed, employment-based DC savings accounts,
had become the major retirement income protection
programme in Hong Kong. MPF members, and their
employers on their behalf, contribute 5% of their
salaries to their individual accounts. There are mini-
mum (USD 910.3) and maximum (USD 3,846.2)
monthly income levels and, for those whose incomes
are below the minimum level, only employers con-
tribute to the scheme. By the end of 2016, 73% of
the 3.49 million Hong Kong labour force were cov-
ered under the MPF and MPF assets reached USD
82.9 billion (MPFA, 2016). However, the replace-
ment rate of MPF benefits for retirees with median
salaries and after having contributed to the MPF
scheme for 40 years reached merely 33%. The latest
estimates suggest that it will take another 25 years
for the MPF scheme to completely mature and pro-
vide fully actualised social protection to retirees in
Hong Kong (MPFA, 2017).
Particular concerns have been raised about the
MPF’s ability to provide adequate social protection
for older-aged people with relatively low lifetime
earnings and those with disrupted working careers,
for example due to spells of childrearing and/or care-
taking of older relatives. According to government
figures, the old-age poverty rate in Hong Kong was
30.1% in 2014 after benefits and taxes (Commission
on Poverty, 2015b), making it the third highest
ranked among rich societies in this regard, behind
only South Korea (50%) and Australia (34%)
(OECD, 2015). The old-age poverty rate in Hong
Kong has been shown to be on an upward trajectory
since the early 1990s, largely due to a significant
decline in the number of earners in households with
older-aged persons, which offset the poverty-reducing
effect of higher education attainment of more recent
cohorts of older Hong Kong people entering into
retirement (Lee & Chou, 2016).
Other research has underlined that the poverty risk
in Hong Kong continues to be significantly higher for
older persons than for younger age groups. In addi-
tion, older-aged people’s acquired human capital
(education and previous employment status), house-
hold composition (number of earners, children and
older adults), place of birth (Hong Kong, Macau,
Taiwan or Mainland China) and gender, among
others, has affected the risk of falling into poverty
during retirement to varying extent (Chan & Chou,
2016). These worrying outcomes and trajectories
have taken place despite a recurrent government
expenditure on older-aged adults in Hong Kong
(excluding public housing) of about HKD55.3 billion
in the financial year 2014–2015, which was
Int J Soc Welfare 2018: 28: 89–99

approximately 20% of the total government recurrent
expenditure (Commission on Poverty, 2015a).
It is in light of these developments that the imple-
mentation of the OALA should be understood as an
attempt by the Hong Kong government to narrow the
pension coverage gap caused by the existing MPF
scheme. However, the OALA is not the sole zero pil-
lar pension programme in Hong Kong. In fact, the
zero pillar consists of three programmes: the Old Age
Category of the Comprehensive Social Security Assis-
tance (Old Age CSSA) scheme, the OALA, and the
Old Age Allowance (OAA) (Commission on Poverty,
2015a).
First, the Old Age CSSA is non-contributory, it is
financed via tax revenues and is means-tested. The
administrative procedure for applying for Old Age
CSSA benefit payments has been characterised as
being particularly strict, with all means tests being
conducted on a household rather than individual
basis. In 2015, the average monthly amount of Old
Age CSSA received by an older person in Hong
Kong was USD711.3, although benefit levels varied
considerably between USD470.1 and USD1,341.3,
depending on the health and other needs of the recip-
ient. Second, all Hong Kong people aged 70 or over
are eligible to apply for the OAA, which is a univer-
sal scheme and provides regular flat-rate benefits of
USD158.3 each month. Third, the newly introduced
OALA was designed to cater for persons aged 65
and above who are not eligible for the Old Age
CSSA. The asset and income limits used for the
OALA are less restrictive than those for the Old Age
CSSA (e.g., financial support from family members
is not regarded as income). However, its monthly
benefits in 2015 were considerably lower even than
the lower bound of Old Age CSSA payments, but
higher than the flat-rate OAA payments (USD306.4).
Before the implementation of the OALA, there
were two schemes under the OAA 2 the so-called
‘Normal OAA’ and the ‘Higher OAA’. In 2012, the
Normal OAA offered monthly payments of
USD139.7 to older people aged between 65 and 69,
was means-tested and used the same criteria for the
assets and income tests as the current OALA. The
Higher OAA offered flat-rate benefit payments of
USD139.7 to those aged 70 or older on a universal
basis. The Old Age CSSA was intended to provide
aid in the form of residual assistance under circum-
stances in which both individuals and their families
failed to provide a sufficient retirement income. How-
ever, due to the strict application process and the
income and asset thresholds in its means tests, the
Old Age CSSA scheme has led to considerable
stigma leading to 43% of eligible old-aged adults fail-
ing to apply (Oxfam, 2010). Although the High OAA
(HOAA) was universal in nature, its benefits were
Int J Soc Welfare 2018: 28: 89–99
© 2018 The Authors. International Journal of Social Welfare © 2018 Akademikerförbundet SSR (ASSR) and John Wiley & Sons Ltd
Introducing a social pension in Hong Kong
too minimal to provide sufficient social protection to
many Hong Kong retirees.
In the remainder of this article, we examine the
OALA, alongside the Old Age CSSA and OAA, in
terms of its effect on poverty alleviation, coverage
rates and fiscal sustainability. We do so by: (i) identi-
fying the median monthly household income before
and after the implementation of the OALA; (ii)
examining old-age poverty rates before and after the
implementation of the OALA; (iii) evaluating the
effect of the OALA on pension coverage; and (iv)
examining the financial sustainability of the OALA
scheme for the coming 50 years.
Investigating the effect of the OALA in Hong Kong
Data sources
Our empirical data were taken from the Hong Kong
GHS, which is conducted every four months and
adopts the sampling frame of quarters maintained by
the Department of Census and Statistics. That is,
records were first stratified by geographical area and
type of quarters, and then quarters were drawn to
form replicates using systematic replicate sampling.
Based on this rotational replicate sample design,
about half of the sampled quarters in each month
were enumerated and interviewed by telephone, while
the other half were newly selected and interviewed
face-to-face.
To increase the sample size for our empirical anal-
ysis, we used four rounds of data collection before
and after implementation of the OALA. The rounds
of the survey examined in this article were from: (i)
the second quarter of 2012 to the first quarter of
2013 and (ii) from the first quarter of 2014 to the
fourth quarter of 2014. The number of sampled
households was approximately 20,000 for each round
of surveys. The full sample consisted of 79,246
households before and 77,751 households after the
implementation of the OALA. Administrative data
from the Department of Social Welfare were
extracted to estimate the coverage of the OALA,
CSSA and OAA, while the fiscal sustainability of the
OALA was projected using a macro-simulation model
based on projected older-aged populations, take-up
rates and total GDP in the coming 50 years, as pro-
posed by the Working Group on Long-Term Fiscal
Planning Report of the Hong Kong government
(Financial Services and the Treasury Bureau, 2016).
Median monthly household income and old-age
poverty rates
Data from the time period before and after the imple-
mentation of the OALA were used to examine the
effect of the OALA on the household incomes and
93
5
K€
uhner & Chou

poverty rates of domestic households in Hong Kong, Table 2. Median monthly income, by household size.
including their older members. The monthly house-
Household Before the After the Change
hold income was computed as the sum of cash size implementation implementation 6
incomes received collectively by all household of the OALA of the OALA
members. We adopted two different methods of
HK$ HK$ HK$
equalisation of household incomes. First, we com- 1 7,000 8,390 1,390
puted the poverty threshold as half of the median of 2 17,500 17,500 0
household income adjusted by household size with 3 22,500 27,500 5,000
the square root rule, which divides household income 4 27,520 35,000 7,480
5 35,000 35,000 0
by the square root of household size, in order to 61 35,000 35,000 0
facilitate international comparison of our findings.
Second, given that the Hong Kong government com-
putes poverty thresholds by adjusting incomes for the OALA. When we used the adjusted poverty thresh-
households with different sizes (1, 2, 3, 4, 5 and 61 olds from after the implementation of the OALA, the
persons in the household), we also adopted this alter- old-age poverty rate decreased only slightly, to 30.67%
native method. (see Table 3).
As the median of the household income changed
after the implementation of the OALA, we calculated Coverage of the OALA
two separate poverty thresholds (i.e., before and after
the implementation of the OALA). The old-age pov- In addition to changes in old-age poverty rates, we
erty rate before and after the implementation of the computed coverage rates of the Old Age CSSA, the
OALA was defined as the number of older-aged per- Normal OAA and the Higher OAA before the imple-
sons who were living in households with incomes mentation of the OALA, and then compared them with
below the various poverty thresholds, respectively, the coverage of the OALA, OAA and Old Age CSSA
and expressed as a share of the total number of older after the implementation of the OALA (Table 4). In
adults in the samples (65 years of age and above). 2012, before the launch of the OALA, the coverage
The number of older adults in the Hong Kong popu- rate of the Old Age CSSA, Normal OAA and Higher
lation before and after the implementation of the OAA was 13, 6 and 32% of older Hong Kong people
OALA was 917,006 and 994,624, respectively, aged 60 and above, respectively. Collectively, just over
because sample weights were attached to each house- half of all older-aged adults in Hong Kong received
hold to align the sample with characteristics of the payments through one of the three schemes (51%).
whole population in the reference year. After the implementation of the OALA in 2014, the
The median monthly household income adjusted collective coverage rate increased from 51 to 57%: the
by household size with the square root rule increased coverage rate of the Old Age CSSA, OALA and OAA
from HKD12,500 to HKD13,750 after the implemen- was 11, 27 and 29% of all adults aged 60 and above,
tation of the OALA. The old-age poverty rate respectively. This increase in the collective coverage
decreased from 36.2 before to 31.57% after the rate of 6% may be due to some older people in Hong
implementation of the OALA when we used the Kong who did not receive any zero pillar pension
same poverty thresholds based on equivalised house-
hold income before the implementation of the OALA Table 3. Percentages and number of people aged 651 in domestic
(Table 3). However, when using the poverty thresh- households with monthly equivalised incomes less than 50% of the
olds generated after the implementation of the OALA median monthly equivalised income by square root rule and by
(i.e., using the adjusted median household incomes), household size.
the old-age poverty rate changed only slightly, to Using the poverty line Using the poverty line
36.77%. Our findings were similar when using the generated before the generated after the
poverty thresholds preferred by the Hong Kong gov- implementation of the implementation of the
OALA OALA
ernment. Even though the income of some individual
households increased due to receiving OALA, the Period Percentage Number Percentage Number
combined effect led to an overall increase in the
Equivalised income by square root rule
median household income only for some, namely 1, 2012Q2–2013Q1 36.20 331,941
3 and 4, but not all household sizes; the amount of 2014Q1–2014Q4 31.57 314,029 36.77 365,764
change in the median household income thereby varied Equivalised income by household size
for each of the three household sizes (Table 2). The 2012Q2–2013Q1 32.47 297,722
2014Q1–2014Q4 27.14 269,986 30.67 305,085
old-age poverty rate decreased from 32.47 to 27.14%
when we used the poverty thresholds based on equival- Note: The average number of people aged 651 is 917,006 during
ised household incomes before the implementation of 2012Q2–2013Q1 and 994,624 during 2014Q1–2014Q4.

Int J Soc Welfare 2018: 28: 89–99

964 © 2018 The Authors. International Journal of Social Welfare © 2018 Akademikerförbundet SSR (ASSR) and John Wiley & Sons Ltd
 Introducing a social pension in Hong Kong

benefits before the implementation of the OALA, sub-

Percentage

aged 601
of people
sequently applying for it. We also found a reduction in

14%
14%
the coverage rate of the Old Age CSSA, which may be
due to some of its recipients shifting to the OALA, pos-
sibly due to the fact that the stigma attached to the
OALA is not as strong as that of the Old Age CSSA.

215,078 (29%)
224,463 (30%)
We accept that our interpretation has to remain specula-
tive at this point, but suggest that further research into
shifting coverage trends before and after the implemen-
OAA

—
—

70
tation of the OALA promises to yield important addi-
tional nuance to our understanding of public attitudes

Source: Social Welfare Services in Figures 2013 and 2016; Labour and Welfare Bureau at http://www.info.gov.hk/gia/general/201702/15/P2017021500357.htm?fontSize=1
towards zero pillar pensions with different structural
Percentage

characteristics.
aged 601
of people

33%
32%

Sustainability of the OALA

—
—

Lastly, we present the projected expenditure trends of

the OALA, OAA and Old Age CSSA in the period
445,297 (63%)
457,265 (64%)

between 2015 and 2064 using a macro-simulation on

Higher OAA

the basis of the 2015 payment levels and prices

(Table 5). We also adopt the projected GDP under
—
—
70

the framework of the Fiscal Planning Report (i.e.,

3.5% for 2014–2021; 3.0% for 2022–2025; 2.5% for
2026–2041; and 2.0% for 2042–2064), and derive
Percentage

trends in the older-aged population in Hong Kong

aged 601
of people

from the latest government projections (Census and

Statistics Department, 2015). All take-up rates for the
6%
6%
—
—

OALA, OAA and Old Age CSSA were taken from

the Financial Services and the Treasury Bureau
(2016), as discussed above. Following its downward
76,189 (8%)
89,010 (9%)
Normal OAA

trend, the Old Age CSSA take-up rate was antici-

pated to decrease gradually to 6.1% in 2064. Because
—
—
65

it was implemented in 2013, there was no trend to

follow for the OALA and we assumed that its take-
up rate would remain at the current level (i.e., 34%
Note: Figures in parenthesis show the percentage of the population of eligible age.

for those aged between 65 and 69 years and 40% for

Percentage

aged 601
Table 4. Coverage of the CSSA, OALA and OAA during the selected years.

of people

those aged 70 years or older for the whole projection

27%
27%

period). According to the latest Fiscal Planning

—
—

Report, a constant take-up of 29% was assumed for

the OAA in the coming 50 years.
According to our projections, the expenditure of
417,593 (39%)
432,862 (39%)

the Old Age CSSA, OAA and the OALA collectively

is expected to increase from 2.8 billion USD in 2015
OALA

to 11.9 billion USD in 2064. This is an increase from

—
—

65

0.96% of GDP in 2015 to 1.23% of GDP in 2064.

The relative share of the Old Age CSSA is thereby
projected to decline from just over 58% in 2015 to
186,070 (14%)
183,322 (13%)
174,791 (11%)
170,914 (11%)

merely 37% in 2064. By contrast, it is the OALA

Old Age CSSA

(from 27 to 33%), and particularly the OAA (from

15 to 30%), that will grow in relative importance. In
the final section of this article, we summarise and
60

discuss our key findings in more detail.

Conclusion and discussion

Eligible age

Social pension payments that are too low may strug-

2011
2012
2014
2015

gle to reduce old-age poverty adequately but ensure it

Int J Soc Welfare 2018: 28: 89–99
© 2018 The Authors. International Journal of Social Welfare © 2018 Akademikerförbundet SSR (ASSR) and John Wiley & Sons Ltd 95
7
K€
uhner & Chou

Table 5. Projected expenditure of the CSSA, OALA and OAA from 2015 to 2064.

Old Age CSSA OALA OAA All schemes

Amounta Percentageb Amounta Percentageb Amounta Percentageb Amount a Percentageb

2015 1,671 0.56 770 0.26 419 0.14 2,860 0.96

2020 2,092 0.59 1,258 0.35 587 0.17 3,937 1.11
2025 2,488 0.60 1,780 0.43 844 0.20 5,132 1.24
2030 2,690 0.57 2,264 0.48 1,197 0.26 6,151 1.31
2035 2,826 0.53 2,386 0.45 1,597 0.30 6,809 1.28
2040 2,895 0.48 2,417 0.40 1,946 0.32 7,258 1.21
2045 3,182 0.48 2,587 0.39 2,263 0.34 8,032 1.21
2050 3,524 0.48 2,867 0.39 2,523 0.34 8,915 1.21
2055 3,875 0.48 3,371 0.42 2,837 0.35 10,082 1.24
2060 4,184 0.47 3,797 0.42 3,218 0.36 11,200 1.25
2064 4,385 0.45 3,974 0.41 3,555 0.37 11,914 1.23

Note: aAmount in USD (‘000,000) – exchange rate: 1 USD 5 7.8 HKD. bAs a percentage of GDP.
The projection of GDP and the take-up rates of the CSSA, OALA, and OAA were adopted under the framework of the ‘Report of the Working Group on
Long-Term Fiscal Planning’.

remains financially sustainable. A balance must be
struck in order to maximise both the poverty allevia-
tion effect and the fiscal sustainability of social pen-
sions. This is true in Hong Kong as much as it is
elsewhere in the Asia-Pacific. Due to the complexity
of related issues, however, there is no one-size-fits-all
reform model of retirement pensions that can be eas-
ily applied in all contexts. In Hong Kong, the imple-
mentation of the OALA was explicitly designed to
address the coverage gap created by the Hong Kong
MPF scheme.
Despite increasing retirement pension coverage by
6%, our findings suggest that the effectiveness of the
OALA in reducing old-age poverty has been limited.
The poverty alleviating effect of the OALA thereby
varies considerably depending on the household equalisa-
tion rule being applied. We have also shown that the
poverty alleviation effect of the OALA is greater when
poverty thresholds before the implementation of the
OALA are used, whereas it is negligible for those after
(due to changes in the equivalised median household
incomes post intervention). The effect of Old Age CSSA
on poverty alleviation is greater than the effect of the
OALA, given that the application procedures and eligi-
bility criteria for the former are much stricter than for the
latter: In 2015, the CSSA reduced the poor population
by some 0.2 million, leading to reductions in the overall
poverty rate in Hong Kong by 2.8% (Commission on
Poverty, 2016). Our analysis suggests that among the
420,227 OALA recipients in the sample, 28.2%
(n 5 118,400), were still classified as living in poverty
despite receiving benefit payments through this scheme.
OALA benefits (USD282.1 in 2014) amounted to only
about two-thirds of the poverty threshold for a one-
person household (USD448.7) in 2014 (Commission on
Poverty, 2015b).
At first glance, this suggests that the most effective
way to increase the poverty alleviating effect of the
986 © 2018 The Authors. International Journal of Social Welfare © 2018 Akademikerförbundet SSR (ASSR) and John Wiley & Sons Ltd
OALA would be to increase its level of benefits.
However, while doing so might or might not further
boost the take-up rate (Cantillon, Van Mechelen, &
Schulte, 2008), it might also pose additional pressures
on the scheme’s fiscal sustainability, as the OALA is
already projected to face substantial costs increases at
the current level of benefits. In the long run, the pov-
erty alleviation effect of OALA benefits will auto-
matically be diminished as they are currently pegged
against consumer prices instead of wage growth. In
the past two decades, the median wage in Hong
Kong increased by 50%, whereas the consumer price
index increased by merely 25% (Census and
Statistics Department, 2003, 2016a, 2016b). Given
the already low level of OALA benefits, this poses a
considerable barrier to effective old-age poverty alle-
viation in Hong Kong and policy makers should seri-
ously consider tagging future increases of OALA
benefits and other cash welfare payments with wages
instead of consumer prices. Hong Kong policy mak-
ers should not allow the benefits of these zero pillar
pensions to devalue over time due to indexation
below wage growth. Failure to reconsider existing
indexation rules and reduce the stigma attached to the
current retirement policies in Hong Kong could lead
to persisting high levels of old-age poverty becoming
further aggravated.
The World Bank recommended that social pen-
sions such as the OALA should be relatively ‘small’
and ‘simple’ so as to satisfy basic fiscal sustainability
criteria (Holzmann & Hinz, 2005). Policy researchers
and non-governmental organisations have advocated
universal pensions that are easier to administer than
means-tested structures and could provide minimum
income guarantees for all older people (Grosh, 2015),
echoing long-standing theoretical debates on the mer-
its of means-tested versus universal policy mecha-
nisms in other social policy areas (Marshall, 1950;
Int J Soc Welfare 2018: 28: 89–99

Tawney, 1952). Both OALA and OAA are perceived
by the Hong Kong public as rights-based instruments,
although the former is offered on the basis of
assessed needs and grounded in selectivity (Chow,
2015). Our findings suggest that it is the universal
OAA, and not the OALA, which will grow most in
relative terms among the zero pillar pensions in Hong
Kong; the relative importance of the ‘strict’ Old Age
CSSA is bound to further diminish. This ‘strengthen-
ing’ of the only universal component of the zero pil-
lar pensions in Hong Kong goes against the
‘productivist’ principles inherent in the Hong Kong
social model. Whether re-allocating the financial
resources from the means-tested Old Age CSSA and
OALA to the OAA scheme is politically feasible –
even in the context of the budget surpluses that the
Hong Kong government continually achieves – is a
question that cannot be sufficiently answered in this
article.
Having said this, poverty alleviation, coverage and
fiscal sustainability are not necessarily conflicting
objectives, but rather two sides of the same coin
(Grech, 2010). If a retirement pension system falls
short in regard to basic adequacy criteria set by pol-
icy makers and the public, there could be strong
political pressure for higher government expenditure
on other welfare policies to support the needs of a
growing older-aged population (Holzmann & Hinz,
2005). There has already been a shift towards consid-
ering how retirement pension provision might be suit-
ably combined with more ‘investive’ welfare policies
over people’s life course to support active ageing and
more progressive adult worker models across Asia
(Estevez-Abe, Yang, & Choi, 2016). What is more,
experts have long acknowledged that the fiscal sus-
tainability of social pensions, not unlike any other
welfare policies, depends on political support for con-
tributions or tax revenues sufficient to pay for regular
benefits and on whether or not timely adjustments are
politically feasible (Barr, 2013). In other words, gov-
ernments have at their disposal policy measures to
assist older-aged people in raising their incomes
through the provision of adequate social protection
during retirement. However, in reality there is no
guarantee that the local politics of social welfare will
enable them to implement and sustain such policies.
In conclusion, we hope that this article will be per-
ceived as a further contribution to the on-going
debate on pension reforms around the world. At the
same time, our analysis has certain limitations,
largely due to the empirical sources at our disposal.
There is therefore no shortage of opportunities to add
to the discussions presented in this article. For
instance, we did not consider the effect of taxes on
the calculation of household income because such
data were not available to us. The effect of this may
Int J Soc Welfare 2018: 28: 89–99
© 2018 The Authors. International Journal of Social Welfare © 2018 Akademikerförbundet SSR (ASSR) and John Wiley & Sons Ltd
Introducing a social pension in Hong Kong
be minimal for the estimation of the old-age poverty
rate in Hong Kong because only 20% of workers
actually pay income tax due to the city’s high exemp-
tion rule, but any attempt to conduct similar analyses
for other Asian cases will have to be more cautious
in this regard. We chose an income-based poverty
definition, yet it is well known that household income
is a sensitive form of data that may be subject to bias
due to under-reporting. For instance, we did not take
expenditure, assets and living standards into account
in the measurement of poverty.
We cannot claim a causal link between the imple-
mentation of the OALA and the reduction in the old-
age poverty rate without using a difference-in-
difference or double-difference estimator, in order to
mimic an experimental research design, by studying
the differential effect of a treatment on a ‘treatment
group’ versus a ‘control group’. Readers should be
mindful of the fact that the highlighted changes in the
old-age poverty and coverage rates between 2012 and
2014 could also have been caused by other factors,
such as economic growth, changing employment rates
and wage increases. Not least, there are some errors
that are very difficult to measure in GHSs. Older peo-
ple who have monthly incomes or assets near the eligi-
bility limit may deliberately reduce their incomes or
assets in order to become eligible for the OALA. Fur-
thermore, a post-intervention period of just one year
was examined, but the longer-term effects of the imple-
mentation of the OALA still remain unknown.
Further work needs to be done to consider how to
improve social pensions in Hong Kong and elsewhere
across Asia, so that further old-age poverty may
potentially be averted and brought closer to the levels
experienced among some of the international leaders
in this regard (OECD, 2015). After six months of
public consultation, the Hong Kong government pro-
posed an increase in benefits, to USD 440.4, for
OALA recipients with few assets (i.e., singles with
less than USD 18,461.5 and older couples with less
than USD 17,948.7) by adding a higher tier of assis-
tance and relaxing the existing asset limits for the
original OALA scheme in 2017 (Commission on
Poverty, 2017). While certainly a positive sign, pre-
venting older people from falling into poverty is a
challenge for Hong Kong policy makers that is only
going to become more challenging in the coming
decades because of the rising inequality in the labour
force, persistently low fertility rates, and ever-
increasing longevity.
Acknowledgements
This work was supported by Humanities and Social
Sciences Prestigious Fellowship Scheme (38600214)
97
9
K€
uhner & Chou
and Research Grant Council Strategic Public Policy
Research (HKIEd 7001-SPPR-11).
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