For discussion
FCR(96-97)118
on 21 March 1997

ITEM FOR FINANCE COMMITTEE

HEAD 170 - SOCIAL WELFARE DEPARTMENT
Subhead 179 Comprehensive social security assistance scheme
Subhead 180 Social security allowance scheme

Members are invited -

1. to approve revised rates of standard payments under the Comprehensive Social Security Assistance Scheme and the Social Security Allowance Scheme with effect from 1 April 1997;

2. to approve revised levels of maximum rent allowance under the Comprehensive Social Security Assistance Scheme with effect from 1 April 1997; and

3. to note the financial implications of (a) and (b) above, estimated at $689.5 million in annually recurrent expenditure.

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PROBLEM
PROPOSAL
Standard Payments under the CSSA Scheme
Standard Payments under the SSA Scheme
Maximum Rent Allowance under the CSSA Scheme
JUSTIFICATION
Standard Payments under the CSSA and SSA Schemes
Maximum Rent Allowance under the CSSA Scheme
FINANCIAL IMPLICATIONS
Introduction
Details
Analysis and Conclusion
BACKGROUND INFORMATION
Introduction
Eligibility
Comprehensive Social Security Assistance scheme
Social Security Allowance scheme

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PROBLEM

We need to adjust the standard payments under the Comprehensive Social Security Assistance (CSSA) Scheme and the Social Security Allowance (SSA) Scheme as well as the maximum rent allowance for CSSA rent paying households to maintain the purchasing power of these payments in 1997-98.

PROPOSAL

2. The Director of Social Welfare (DSW) proposes to increase with effect from 1 April 1997 -

1. by 6.5% the standard payments under the CSSA and SSA Schemes, pursuant to the forecast increase in the Social Security Assistance Index of Prices (SSAIP); and

2. by 8% the maximum rent allowance under the CSSA Scheme, pursuant to the movement of the rent index for private housing under the Consumer Price Index (A) (CPI(A)).

3. If Members approve the above proposals, the rates of standard payments under the CSSA and SSA Schemes and the maximum rent allowance under the CSSA Scheme will be as follows -

Standard Payments under the CSSA Scheme

Standard Payments under the SSA Scheme

Maximum Rent Allowance under the CSSA Scheme

JUSTIFICATION

Standard Payments under the CSSA and SSA Schemes

4. To maintain their purchasing power, we revise the rates of standard payments under the CSSA and SSA Schemes annually in accordance with the forecast increase in the SSAIP. If the forecast increase proves to be different from the actual increase, we should take the difference into account in calculating the adjustment for the following year.

5. Members approved the existing rates in February and April 1996, vide FCR(95-96)127 and FCR(96-97)3 respectively, on the basis of a forecast increase of 7% in the SSAIP from the six month period of July-December 1995 to the six month period of July-December 1996. The actual increase turned out to be 3.4%. We had therefore over-estimated the rate of inflation by 3.6 percentage points.

6. Having regard to past trends and factors that might affect future price movement, the Government Economist forecasts that the SSAIP will increase by 6.5% from the last six months of 1996 to the similar period in 1997. If we were to follow strictly the principle that the difference between the projected increase and the actual outturn should be taken into account in calculating the adjustment for the following year and hence subsume last year’s over-estimate of 3.6 percentage points in the forecast increase of 6.5% for this year, the adjustment rate for 1997-98 should be 2.9%.

7. The extent of over-estimation in 1996-97 is greater than in the previous four years. It has meant that the total expenditure on standard payments for CSSA and SSA in 1996-97 was over $300 million more than that required for maintaining the purchasing power of the allowances. The estimated additional recurrent expenditure on standard payments for CSSA and SSA in 1997-98 will amount to $364 million if we do not account for this element of over-estimate.

8. The DSW, after thorough deliberations on the subject, recommends that we should adopt the full forecast rate of increase of 6.5% for adjusting standard payments under both the CSSA and the SSA Schemes in 1997-98, with the exception of the annual Long Term Supplement (LTS) for a family comprising five or more members. By not allowing for the over-estimate in the SSAIP of the preceding year from the increase forecast for 1997-98, we will be giving recipients over the two-year period cumulative increases in the benefit rates which are more than the adjustments for inflation.

9. The unprecedented extent of the over-estimate for SSAIP in 1996-97 points to a need to review the SSAIP forecast methodology to deal with the question of an apparent systemic bias. We have already commenced the review.

10. With regard to the LTS, the Review of the CSSA Scheme completed in March 1996 revealed that the annualised expenditure on replacement of major durable items by larger families (i.e., those with five or more members) is much less than the corresponding annual LTS and is in effect not significantly different from that of families with two to four members. The Review concluded that we should freeze the rate for such larger households at the then newly revised 1996-97 level until it equates with that for families with two to four members. Hence, we propose no adjustment to the current rate of the annual LTS for families with five or more members.

Maximum Rent Allowance under the CSSA Scheme

11. On 12 April 1996, Members approved, vide FCR(96-97)3, an increase of between 17% to 52% in the levels of maximum rent allowance with effect from 1 April 1996 for CSSA rent paying households living in private housing . DSW recently conducted an analysis of the rent paid by CSSA households living in private housing. Taking the levels approved in 1996 as the benchmark for determining the maximum rent allowance and having regard to the movement of the rent index for private housing of the CPI(A), DSW proposes to increase the levels of maximum rent allowance by 8% with effect from 1 April 1997.

FINANCIAL IMPLICATIONS

12. DSW estimates that the foregoing proposals will lead to an estimated additional recurrent expenditure of $689.5 million per year, broken down as follows -

13. We have not allowed for the proposed price adjustments for CSSA and SSA schemes in the respective subheads in the 1997-98 draft Estimates. This is in line with our normal practice whereby we allow for additional provision required for price adjustments during the year under the additional commitments subhead 251 in Head 106 Miscellaneous Services. Thus, subject to Members’ approval of the revised rates, we would deal with any net additional provision that we may require during 1997-98, including any additional requirement for non-standard payments, through supplementary provision as required.

BACKGROUND INFORMATION

14. The social security system comprises two schemes : the CSSA Scheme and the SSA Scheme. An explanatory note is at the Enclosure.

15. In considering the annual rate adjustment on 11 March 1994, vide FCR(93-94)147, Members noted the methodology for making inflation adjustments to the standard payments under the CSSA and SSA Schemes which has the following key features -

1. we use the SSAIP rather than the Consumer Price Index (CPI) since the SSAIP measures inflation according to the expenditure pattern of CSSA recipients. It consists of the same items as the CPI, except for items such as rent, which the special grants under the CSSA Scheme cover. The Census and Statistics Department compiles SSAIP on a monthly basis;

2. we would continue to make inflation adjustments on the basis of the forecast increase in the SSAIP. This would avoid CSSA recipients being put in the disadvantageous position of only catching up with past inflation; and

3. we would measure increases in the SSAIP by comparing the average index for the six-month period from July to December in the previous year with that forecast for the same period in the current year.

16. As regards the maximum rent allowance under the CSSA Scheme, it is payable as a special grant to CSSA recipients to meet the cost of accommodation. The amount of the allowance is the actual rent paid or the maximum levels prescribed under the CSSA Scheme, whichever is the less. At present, the rent allowance fully covers the actual rent paid by recipients living in public housing estates. Where appropriate, DSW may exercise his discretionary power to approve a rent allowance above the maximum level to cover the actual rent paid by recipients living in private housing.

Health and Welfare Branch

March1997

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Supplementary Note to FCR(96-97)118

HEAD 170 - SOCIAL WELFARE DEPARTMENT
Subhead 179 Comprehensive social security assistance scheme

Introduction

At the Legislative Council Welfare Panel meeting on 14 March 1997, representatives of Health and Welfare Branch and Social Welfare Department informed Members inter alia that the maximum rent allowance under the Comprehensive Social Security Assistance (CSSA) Scheme for households living in private rental housing should be increased by 8% with effect from 1 April 1997 to maintain the purchasing power of the allowance in 1997-98. In making the recommendation, the Branch and the Department made reference to a recent analysis of the rent paid by CSSA households living in private housing and the movement of the rent index for private housing of the Consumer Price Index (A) (CPI(A)). Members suggested that the Finance Committee be provided with information on this analysis conducted recently by the Director of Social Welfare (DSW).

Details

2. An annual survey of CSSA recipients is conducted around December each year to update the Social Welfare Department’s database on the profile and characteristics of the recipients. The survey of the 1995 CSSA recipients conducted in December 1996 revealed the following findings with regard to the rent paid by the 90th percentile CSSA households living in private housing -

Notes : (a) Based on Study of CSSA Recipients in 1995.

(b) Rents paid by CSSA households were brought up to April 1996 level by multiplying the rents paid as at December 1995 by the rate of increase in CPI(A) rent index for private housing during the period i.e. 3.3%.

Analysis and Conclusion

3. The 1996-97 levels of maximum rent allowance exceeded the actual rent paid by the majority of the rent paying households. In overall terms, 91% of the rent-paying households have their actual rent fully covered.

4. At different household-size levels, the existing maximum rent allowance adequately cover the rent paid by households of 1, 3 or 5 persons. Households of 2 persons or 6 or more persons appear to be fairly well provided for. The only exception relates to the provision for households of 4 persons which shows a rental requirement well above those required by households of 5 or 6 or more persons. This ‘unusual’ phenomenon might be partly due to the usual limitations with sample studies. The findings is obtained from a sample study covering about 4 400 cases, the estimates are therefore subject to sampling fluctuations. With a sampling fraction of 1 in 9 for family cases (i.e. cases with more than one eligible member), the anomaly may also be attributable to sampling errors. We could therefore take a more liberal view of the findings.

5. In view of the fact that in overall terms the existing levels of maximum rent allowance cover the actual rent paid by the majority (91% of all) of rent paying CSSA households in private housing and that paid by households of different sizes except with regard to households of 4 persons, it is therefore recommended that the 1996-97 levels be taken as the benchmark for determining the maximum rent allowance for 1997-98. Having regard to the movement of the rent index for private housing under the CPI(A), DSW has proposed to increase the levels of maximum rent allowance by 8% with effect from 1 April 1997 as follows -

Maximum rent allowance

Health and Welfare Branch

March 1997

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Enclosure to FCR(96-97)118

Introduction

The social security system provides a safety net for individuals or families suffering financial hardship for various reasons, such as old age, disability, illness, unemployment, low earnings, etc. The aim of the Comprehensive Social Security Assistance (CSSA) Scheme is to bring the income of such individuals or families up to a prescribed level where basic and special needs can be met. The aim of the Social Security Allowance (SSA) Scheme is to help the severely disabled and the elderly to meet the special needs which arise from disability and old age. A person can receive either assistance under the CSSA Scheme or one of the allowances under the SSA Scheme.

Eligibility

2. Both schemes are non-contributory and have residence requirement. The CSSA Scheme is means-tested. In addition, applicants for CSSA aged between 15 and 59, if unemployed and in normal health, are expected to seek work actively by registering for employment assistance with the Labour Department.

3. Applicants for SSA are not subject to a means test; but persons aged between 65 and 69 claiming the Old Age Allowance have to declare that their income and assets do not exceed the prescribed levels.

Comprehensive Social Security Assistance scheme

4. The amount of assistance is determined by the resources and needs of the applicant. The difference between the applicant’s assessable income and his total needs as determined by reference to certain prescribed levels, will be the amount of assistance given.

5. The scheme includes different standard payments to meet the basic needs of broad categories of recipients. In addition, an annual long-term supplement is paid to those who have been receiving assistance continuously for more than 12 months for the replacement of household and durable goods.

A monthly supplement is also paid to single parents in recognition of the special difficulties they face in bringing up families on their own without the support of spouses. Apart from these standard payments, a wide range of non-standard payments in the form of special grants are payable to meet the specific needs of an individual or a family. They include payments to cover such expenses as rent, school fees and other educational expenses, medically recommended diets, spectacles and dentures.

Social Security Allowance scheme

6. Four allowances are payable under this scheme as follows -

1. Normal Disability Allowance

   For severely disabled persons who, broadly speaking, suffer from a 100% loss of earning capacity, or who are profoundly deaf.

2. Higher Disability Allowance

   For severely disabled persons who require constant attendance from others in their daily life but are not receiving such care in a government or subvented institution or a medical institution under the Hospital Authority.

3. Normal Old Age Allowance

   For persons aged between 65 and 69 whose income and assets do not exceed the prescribed levels.

4. Higher Old Age Allowance

   For persons aged 70 or over.

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