A new allowance to help elderly in need

8 October 2012

Alleviation of elderly poverty ranks highly on the agenda of the current- term Administration. To promptly fulfil his election manifesto, the Chief Executive announced in July the Government’s plan to introduce a new Old Age Living Allowance (OALA) of $2,200 per month to provide more financial support for elderly people in need.

Since then, there has been some misunderstanding about the objective of this new allowance, with the debate centering around why those aged 70 or above have to declare their financial means to receive OALA.

The argument goes that because those aged 70 or above already receive an Old Age Allowance (commonly referred to as ‘fruit money’) without a means test, they should not have to satisfy a means test to receive the new OALA.

What this argument glosses over is the fact that this is a new type of allowance, and its objective is entirely different from the “fruit money”. The new allowance also comes with new demands on financial resources.

It is not and cannot be an open-ended, blank-cheque extension of the current ‘fruit money’ because it is simply not the same thing – it is a new allowance to alleviate elderly poverty. There are always limits on Government spending plans, but in particular new spending plans.

If we do take an open-ended approach with OALA – which is what is being suggested – this will inevitably impact on other areas of spending that are also important to society such as health care, social and welfare services, aged care, education and security.

We thus need to adopt prudent fiscal management and balance the competing needs of society.

The argument against a means test also neglects the fact that there are people with genuine needs who could really do with an extra $1,100 or so each month – as is proposed under the new OALA – while there are also those aged 70 or above who really do not need it.

If I have $1,000 to split between 10 people, how can I do the most good with that money? Do I split it evenly among all 10 people, or do I give it to those who need it most?

The current Old Age Allowance, that is the ‘fruit money’, takes the needs-blind approach of splitting the pie evenly among all recipients reaching 70 years of age. Let me stress that this will not change – so these elders can still receive the $1,090 a month in ‘fruit money’ without having to declare their means. We consider this a fair approach and know it is commonly regarded as a token recognition of the contribution to society that these people have made over many decades.

The new allowance, though, is an additional financial support measure for the elderly which aims to do the most good for those in greater need.

With all the debate about a means test, it is worth noting that those aged between 65 and 69 who want to receive ‘fruit money’ must already meet the rather liberal criteria regarding their financial means.

These people will automatically qualify for the new OALA when introduced, and as long as they continue to make the same declaration that they have already been making, they will get the new OALA allowance of $2,200 a month.

Basically, then, this leaves us with people aged 70 or above who are receiving ‘fruit money’ but who may want to sign up for the OALA.

What are we asking them to do? Not much really.

We are asking them to sign a simple declaration of income and assets which, as mentioned already, is the same as that for those aged 65-69 who are already receiving ‘fruit money’.

Applicants should be aged 65 or above and meet residence requirements. For a single elderly person, the monthly income limit is $6,660 while the asset limit is $186,000. For a married couple, the monthly income limit is $10,520 while the asset limit is $281,000.

Owner-occupied property and money received from family members, relatives or friends are excluded from the definition of assets and income respectively. These are very liberal criteria designed to benefit as many people as possible, within reason and within the scope of limited government financial resources.

We estimate that over 400 000 elderly people will be eligible for the OALA in the first year. The additional government spending on cash payments for the first year, if projected to a 12-month period, would be around $6.2 billion –which is equivalent to a 14% increase in recurrent welfare spending for 2012-13, or a 2.3% increase in the total recurrent government spending.

Because of the ageing population, we estimate that spending on the new OALA would increase by about 50% to $9.6 billion in 10 years’ time.

But if we do not require OALA applicants to declare their means, the cost would jump immediately to almost $13.6 billion if we use 65 as the benchmark year, or $10 billion for a benchmark year of 70. With a rapidly growing elderly population, the extra financial costs will balloon in the future.

An ageing population also poses great challenges to our welfare and health care system. Demand for hospital beds, residential care places and community care services for the elderly will all increase. Against this background, we have to use our limited resources in a targeted and effective way.

We will continue to enhance various non-cash based social welfare, such as the heavily subsidised health care and welfare services, and public housing.

When the new-term Legislative Council commences in mid-October, we will brief the Legislative Council Panel on Welfare Services at the earliest opportunity about the new OALA and seek funding approval from the Finance Committee at its first meeting on 26 October.

If funding approval can be obtained within October, the new allowance can be launched in the first quarter of next year and those eligible will receive a lump sum payment in arrears counting from 1 October this year.