The Social Security Fund (FSS) today (November 6^th) published the actuarial report about the “Study on Early Old-age Pension System” that was carried out by its commissioned consulting firm.  The report indicated that based on a set of more reasonable actuarial assumptions, the percentage of early old-age pension of an individual aged 60 should be 72%, which is lower than the 75% under the current pension system.  The FSS said that old-age pension is a basic payment of retirement protection for the residents of Macao.  The actuarial report can serve as a reference for improving the old-age pension payment system in the future.  However, at this stage, given the interest of old-age pensioners and maintenance of the stability of the pension system, the report suggested to keep this more favourable percentage and the relevant computation method that are currently in place.   

In order to respond to the concerns of society, the FSS last year commissioned Towers Watson Hong Kong Limited (Towers Watson) to carry out an in-depth report on early old-age pension system, comprehensively review the correctness, fairness and appropriacy of the payment system of old-age pension.  The report was published today (November 6^th) and the full text of the report is available online at the FSS website www.fss.gov.mo/pt/newscenter/research. 

Actuarial result shows a lower percentage

The actuarial report indicated that, after making reference to the experience of other countries or regions that implement similar systems and that allow beneficiaries to receive early old-age pension, it was found that the percentage of early old-age pension in Macao is relatively high when compared with these reference countries or regions.  Typically, the percentage of early old-age pension for an individual who starts to receive pension five years earlier is about 70% of full pension, however, such percentage is 75% in Macao.  At the same time, such percentage only remains unchanged until age 80 in Macao, which is more favourable than the international practice that generally remains unchanged up until the death of the beneficiary.  The consulting firm applied the concept of actuarial equivalence to compute the percentage of early old-age pension based on a set of more reasonable actuarial assumptions, such as the future increase of old-age pension, the time value of money and survival probability, etc.  Let’s say a beneficiary at age 60, the actuarial result is 72%, which is lower than the 75% under the current pension system:  

Due to uncertainties like benefit increase, inflation and the risk of death, using the above actuarial assumptions to compute the same “present value of total benefits” is more equitable than by just calculating the same “total amount of benefits”, because it can, at the same time, take into account the rights of old-age pensioners of different ages over the same period and old-age pensioners of different generations, i.e. to achieve horizontal equity and vertical equity simultaneously.  Thus, in computing early old-age pension, a more equitable way should be decreasing the percentage instead of increasing it further. 

The Government proposes to keep the current computation method

Ip Keng Kin, President of the FSS Administrative Committee, announced at the press conference that the Government agreed on the method of computing the “present value of total benefits” because it better reflects considerations of fairness, and all participants of the system are welcome to take part in the discussion about improving the payment system of old-age pension.  However, at this stage, after thoroughly considered the actuarial opinion, combined with the actual situation that Macao society and old-age pensioners generally agree on and accept the current computation method, the Government believes that keeping the existing percentage not only can ensure the stability of the pension system, but also avoid causing confusion to the public, thus, it is a more feasible and favourable approach for the general public. 

He also pointed out that whether the current age percentage or the actuarial percentage is projected based on average data.  When there are changes in parameters such as economic and social environment, financial revenues of the Government, inflation rate, discount rate, lifespan of individuals, the amount of old-age pension, the rate and frequency of increase can also affect the results of computation, making it differ from the mean value, thus cannot compute and compare the percentage based on the current situation.  There is certainly a difference between the computation results in different cases. 

He reiterated that the social security system is implemented based on the principles of universality, sustainability, support by contributions and no renunciation, and its ultimate goal is to continuously provide basic old-age security for the overall Macao residents.  At present, old-age pension is the most fundamental payment of old-age security for the residents.  Thus, the payment provisions such as the pensionable age, benefit amount and qualifying conditions must be considered from the directions such as the sustainability of the overall system, the protection of beneficiaries’ rights and the capability to respond to the issue of ageing society. 

On the other hand, the consulting firm also suggested that in the future the Government must set up an integrated adjustment mechanism for pension payment by applying multiple parameters.  On top of inflation rate and discount rate, the Government can also make reference to the practical experience of other countries/regions by setting indicators of indexation other than the actuarial assumptions that are mentioned in the report, such as the levels of contributions, benefits and balances, etc.  At the same time clarify the role and position of the Government, so as to establish an adjustable mechanism of the social security system that is in line with the principles of sufficiency, affordability, robustness and sustainability.  The FSS agreed on these suggestions. 

The FSS hopes that the publication of the actuarial report about “Study on Early Old-age Pension System” can provide a reference for the related discussions, and stressed that the Government will remain open to accept views from various sectors of society.