Pension Reform Momentum

Photo: CNA

The aging of Taiwan’s society is hitting its pension system hard, with fewer people paying into national pension schemes and more people drawing off them. Pension reform has been the subject of controversy for years, and with the Tsai administration putting its full weight behind it, the issue has erupted into a major conflagration, with violent protests by civil servants, military personnel, and teachers targeting government forums where the issues have been discussed.

The issue is critical. Taiwan’s public sector and labor pensions were reportedly underfunded by NT$18 trillion (US$570 billion) in 2016, more than nine times the government’s 2017 annual budget of NT$1.99 trillion. According to the 2015 annual report of the Public-Service Pension Fund Management Board under the Ministry of Civil Service of the Examination Yuan, the Pension Fund received NT$59.7 billion in contributions in 2015 while paying out NT$70 billion in benefits. In 2015 the Fund’s net assets stood at NT$573.6 billion, down NT$21.2 billion from the previous year.

Government data forecasts that the pension fund for military personnel could default by 2020, for civil servants by 2030, for teachers in 2031, and for other workers in 2048.

On January 22, President Tsai closed a national pension reform forum held at the Presidential Office with a declaration that pension reform would be accomplished, despite the thousands of protesters outside on the streets.

The administration is calling for a series of reforms aimed at shoring up the various funds for the next few decades.

First, it has declared the end of preferential 18% interest rates on pension deposits for public sector employees, with the rate gradually lowered to market equivalent within six years. Also, it is calling for the income replacement rate for retired public servants to be lowered from 75% to 60%. The administration is likewise pushing for extensions to the salary period used to calculate pension payments, and for increasing the retirement age. It is further proposing raising the ceiling on labor insurance premium rates to 18% while injecting government money into pension funds to secure financial sustainability, and improving the overall management of the funds to enhance transparency and yields.

Draft legislation to put forward many of the administration’s reforms by amending the Law on Retirement from Public Service was submitted to the Legislative Yuan on February 24. The government will address reforms to military pensions separately as the standards for career military service differ from the civil service, including lower monthly salaries and earlier retirement due to the physical demands of the work.