REPORT OUTLINE
Date: 26 March 2008
Title: Extension of the Retirement Age in Hong Kong
Type of Report: Protocol Proposal
Objective: Rapidly aging populace is one of the major challenges to Hong Kong government as it has staggering effects on the economy. This paper aim to propose different protocols or procedures that the government could undertook in the form of Retirement Age extension Policy.
Existing Governmental Authorities: Hong Kong Retirement Scheme Association, Mandatory Provident Fund Schemes Authority and Task Force on Population Policy
Existing Governmental Programs: Comprehensive Social Security Assistance, Supplementary Labor Scheme and Quality Migrant Scheme
Abstract: Hong Kong’s population is rapidly aging. Without necessary changes in policy, the consequences will directly impact the economic performance. This document proposes the protocol/procedure from formulating to implementing the Retirement Age Extension Policy; the phrase the paper will going to use from this point onwards.
Governing Units: Central Policy Unit and Commission on Strategic Development
Key Words: Retirement age, policy, Hong Kong, commission, retirement age extension, population
Extension of the Retirement Age in Hong Kong
1. The Scenario
Hong Kong is facing a dilemma – its population is aging. The aging population is expected to have a negative impact on Hong Kong’s economy, community and labor force. If the labor force will continue to decrease relative to overall population, there will be a slowdown in Hong Kong’s economic development and government revenue will be reduced. The government will also be forced to allot more expenditure on security assistance, welfare and health care services.
The trend was observed since 1991 when Hong Kong population ranked 38th of the countries with oldest populations in the world with 8.8% of the total population is over 65. As Lee Ngok and Agnes Lam (1994) put it, “the age of the economically-active population has been slowly shifting upwards” whereby the median age was already 34.4 years old during that year, and has been rising slowly since then (refer to Table 1 in Appendices section).
One of the adverse impacts of the aging population is the increase in social security payments. As the population ages, the society will need to allot more resources for the caring of its elderly. As a result, fewer resources can be devoted to productive investment or to the younger generations. This can lead to long-term economic stagnation and decreased competitiveness against other economies with younger populations.
According to Doug Crets (2006), “Hong Kong’s low mandatory retirement age was even exacerbated by the rapidly aging population and being one of the world’s lowest birth rates”. Unless the government and individuals plan for the future, within the Hong Kong workforce and hence economy, there would be the existence of ‘brain drain’.
There are no existing mandates regarding the retirement age in Hong Kong at present. Individual employers or companies can set the appropriate retirement age for their employees which may form part of the employment terms agreed between the two parties. Most Hong Kong people strongly believed that the government should enforce mandatory increase in retirement age as well as “additional private savings” (Crets, 2006).
Because of the increasing concerns about the economic and labor force impact of the aging population, the Hong Kong government has taken steps towards the creation of suitable regulations and programs especially in the area of retirement arrangement. The Central Policy Unit was appointed to conduct a study of different retirement policies in selected countries and assess their applicability to Hong Kong.
2. The Retirement Age Extension Policy
The retirement system of Hong Kong, like any other system, experiences challenges including: a) dependable income during retirement, b) adequate retirement income, c) sensible investment options and d) defined contribution benefits that deliver even when employees do not make good choices.
Currently, the retirement age for Hong Kong employees overall is 65 but since there are no governmental regulations that will govern the workforce, as already mentioned, employers and/or companies are free to decide on the retirement age of their employees. Alternatively, Hong Kong is one of the nations with the world’s longest average life expectancy of 81.6 years overall (Asia Sentinel, 2007).
Such situation has profound impact on the economic performance of Hong Kong in general. People aged 65 and above presently account for 12.3 percent of the total population. Such proportion is estimated to increase by 14.6% and 25.6% by 2015 and 2033, respectively.
Since retirement planning is not enough, mandatory policy must be in existence to compensate life expectancy over retirement age. To wit, between the ages of 60 and 65 and beyond such, Hong Kong population could still be active economically. Apart from overcoming the retirement dilemmas mentioned above, the government could devote its finances and welfare provision for on health and care for the handicapped and for children (Asia Sentinel, 2007).
3. Impact on Management Environment in Hong Kong
Such policy will surely affect the sustainability, equity and growth of the region especially on two subjects namely structure and substance. For employers, most especially, whether public or private, the implications will be on choosing between pay-as-you-go or funded and defined benefit or defined contribution. Substance will deal much on target placement rate, normal retirement age, how much and what kind of redistribution and how much coverage.
Nevertheless, the Hong Kong aging population must be seen as an opportunity rather than a threat according to HSBC Global Forum on Ageing and Retirement because of the fact that ‘age-diverse workforces are good for businesses’. Based on a survey conducted, working practices could not change quickly enough and that governments must do more in order to remove barriers to the continued employment of older people particularly on exclusionary employment policies.
Perhaps the questions would be: How the Retirement Age Extension Policy could benefit the management? The logic is simply. The results of the findings found out that a store staffed with older people achieved an 18% increase in profit, 39% reduction in absenteeism and 59% less product loss. To wit, as the consuming population age, people and the business make sense of retail and business providers follow such a pattern – experience and wisdom.
Further, the initiative impacts much of the human resources functions of ensuring an effective and strategic workforce diversification with respect to age. Unfortunately, what are much needed to be combated upon are not pension schemes or government financial distribution but the prejudice of the society and the inclination to recruit based on outdated stereotypes.
Employment prejudice too may be placed on the equal opportunity in employment and flexible work arrangement as well as health benefits that would probably be provided by the employers and companies. Instead of becoming overly-dependent to social security assistance, it was found out that Hong Kong generally prefer to work for longer time in order to save more. Such effort purports the capability to finance old-age expenses.
For Hong Kong’s economic growth, the implications would be the challenges to transform perceptions on aging to constructive ones including areas of reduced labour force and hence sustained labour productivity gain. Public finances as a major concern was even exacerbated by already complex tax base problem. Social welfares and health as well as old-age related public expenditures and other spending items such as retraining and continuing professional education are other concerns.
4. Theoretical Model
In this paper, the researcher will adapt the research process “onion” only it will modify terms. That is to come to the core of the implications of extending the retirement age in management; this policy paper will follow the essence of using such model.
Towards addressing the main objective of the paper which is the Retirement Age Extension Policy, the protocol will be in four phases. The first phase will be agenda setting and consensus-building, policy formulation as the second phase, closely followed by policy implementation at the third and policy evaluation at the last phase. The center of this model is focus on the impact of the policy in various management practices in different industries and sectors in Hong Kong business.
5. Building and Implementing Retirement Age Extension Policy
Prior to the implementation of the Retirement Age Extension Policy, there are several procedures and activities that must be undertaken. First, there must be a clear agenda. A clear agenda will govern the entire process of creating, establishing, implementing, monitoring and reporting of the Retirement Age Extension Policy while also involving all interested parties such as the Hong Kong Retirement Scheme Association, the Mandatory Provident Fund Schemes Authority as well as employers and sector representatives for example. It is important to note that council members have no power acting alone and so the issue of extending the retirement age must be put in public agenda.
Shared perception is the secret of effectively responding to problems that must be solved, issues that must be resolved and also realizing opportunities. Existing conditions provide a reference point as compared to necessary actions. Hence, the task of documenting of existing conditions within the policy-making process is but vital. Further, documents will be as the basis for budgeting.
For starters, different means will be used. These are: legal in the form of Hong Kong government and Courts; administrative that will issue regulatory orders; legislative that will propose a change in the law; negotiation or bringing all the parties together; political which will create an alliance with the Chief Executive; press which will feed the media and the general public with adequate information on the progress and inertia that will drive its own momentum (Diagram 1).
Secondly, there were no policies to succeed if there is no support from the top. Hong Kong government structure is made up of executive, administrative and legislative councils along with district councils and judiciary. Achieved through consensus, their participation are critical for providing inputs and some sort of approval regarding the Retirement Age Extension Policy.
Under this procedure, there would be the possibility of creating a committee that will serve to be the overseers of the whole process and as suggested, it must come from the senior leadership so that s/he will become the documenting and reporting force before the Chief Executive accompanied by subject matter experts, potential users of the policy and representatives from groups which will be affected by the said policy. This committee can make recommendations depending on the impact of the policy and also ensure its viability and legitimacy.
This policy-making body will be guided by the core principles (Mitchell) that follow:
1) Politicians and public servants are accountable to the public.
2) In politics and the private sector, elites hold no right to pursue their without constraints.
3) Apart from being responsive to public concerns, government bureaucratic and decision-processes must be open, accessible and transparent.
4) Individuals and communities that are affected by the policy have the right to information regarding proposed developments, the right to challenge the need for and the design of policies and the right to be involved in planning and decision-making processes.
Thirdly, the committee shall formulate the contents of the Retirement Age Extension Policy. The policy should include a clear statement of purpose that is well-understood by everybody, description of the communities affected, history of revisions (if necessary), definitions of special terms and specific policy instructions designed by the committee and approved by the Chief Executive. Moreover, the language of the policy must be always in layman and hence necessary to incorporate catch-all clauses.
Fourthly, it is the committee’s task to prepare the budget for implementing the Retirement Age Extension Policy. As such, the implementation must follow the protocols of setting-up fiscal targets and the levels of expenditure; formulating expenditure policies; allocating resources; and addressing operational efficiency and performance issues.
After setting up all the processes of making the Retirement Age Extension Policy as well as the budgeting, and including decision-making from the Chief Executive’s office, comes the implementation phase. The implementation of public policies is the most visible and obvious part of the policy-making process and thus comes the responsibility to continually make the people aware through monitoring and eventually reporting.
Finally, the committee shall effectively communicate not just with the concerned people but also on the general public. However, this may not be easy since there are communication barriers. At the very least, there would be the need to make sure that the different methodologies, procedures, data analysis and projections used by the committee are compatible and harmonized and that different employers and companies or firms are committed to deliver initiatives for the committee to report and be communicated for the Hong Kong populace.
The most plausible solution would be the development of indicators. The committee must generate criteria for the selection of indicators. For the Retirement Age Extension policy for example, this would be the clear definition and common understanding, are policy relevant, soundly founded, well-documented, of known quality, transparent, comparable and easily available.
The governing and likewise implementing entities of the Retirement Age Extension Policy are:
A) Task Force on Population Policy
Inaugurated on July 1, 2002, the Task Force is responsible for ensuring the development of comprehensive population policies. It was set-up by the Chief Secretary for Administration which he chaired along with the members from various bureaux and departments.
2) Hong Kong Retirement Scheme Association (HKSRA)
Formed in 1996, HKSRA acts as an authoritative body within the retirement protection industry. Their responsibility includes promotion of the best practices for different stakeholders involved with retirement schemes, increase awareness regarding retirement protection issues, promote professional education and training in retirement protection, assist in building and promoting the region as the center for excellence when it comes to retirement protection and maintain contact6 in China and Macau and promote awareness in financial protection.
3) Mandatory Provident Fund Schemes Authority (MPFA)
MPFA has an important role on the financial security of the retiring population through ensuring that provision of retirement protection by means of effective and efficient system of prudential regulation and supervision of privately-managed provident fund schemes.
4) Commission on Strategic Development
The Commission is under the maintenance and supervision of the Central Policy Unit. Established two years ago by the Chief Executive, the Commission on Strategic Development aimed at developing various recommendation for national population policy.
4. Appendices
Table 1 Median Age of Economically-Active Population in Hong Kong (Source: Census and Statistics Department, 1991, p. 51)
Diagram 1 Different Means Toward the Implementation of Retirement Age Extension Policy
Diagram 2 Policymaking Process for Retirement Age Extension Policy
5. Bibliography
An overview of Key Population Policy (Part II): Major Issues on Ageing and Eligibility and Portability of Public Benefits. (2006). Commission on Strategic Development and Committee on Social Development and Quality of Life.
Census and Statistics Department. (1991). Hong Kong 1991 Population Census: Summary Results. Hong Kong: Census Planning Section, Census and Statistics Department, Hong Kong.
Local Government Policy-Making Process. (1999). Report No. 45 – Municipal Research and Services Center.
Mitchell, B. (n.d.). Policy-Making Process.
Ngok, L. & Lam, A. (1994). Professional and Continuing Education in Hong Kong: Issues and Perspectives. Hong Kong: Hong Kong University Press.
Policy-Making Process, The. (2000). Retrieved on 26 March 2008 from http://web.mit.edu/tpp.11/www/Tobacco_Policy_Analysis_revised.ppt#256,1,The Policy-Making Process.
Singapore, Hong Kong and Inadequate Pension Plans. (2007). Asia Sentinel. Retrieved on 26 March 2008 from http://www.asiasentinel.com/index.php?option=com_content&task=view&id=669&Itemid=32.
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