Starting a Pension Experiment

A “member-choice” system is due to get a two-year trial.

Taiwan has historically been conservative in its approach to pensions, preferring to assure its citizens a guaranteed if modest return. But as AmCham Taipei has long argued in its annual Taiwan White Paper, that approach is not necessarily in the best interest of all investors. Many citizens are willing, even eager, to accept higher risk in hope of greater gain. 

Over time, the notion of wider choice based on individuals’ risk tolerance has gained greater support. The Taiwanese population has become more sophisticated in its knowledge and awareness of investing, and many people have grown increasingly concerned about the quality of life they will be able to enjoy in their senior years.

Six years ago, the pension system for teachers in private schools was restructured to provide greater flexibility. Participants were given the option of investing in one of three investment portfolios with different investment approaches. The respective rates of return in 2017 were 1.31% (conservative), 5.60% (stable), and 9.76% (aggressive).

In addition, the Life-Cycle Fund established in late 2017 automatically adjusts the allocation among the other three portfolios according to the investor’s age, reducing the amount of risk as the investor grows older.

In a move toward adopting a similar “member choice pension scheme” for the broader population, the government last year approved a trial National Pension Project based largely on the private-school pension plan model. Fund Rich Securities, a joint venture between the Taiwan Depository & Clearing Corporation (TDCC) and the Taipei Exchange (TPEx), was assigned to run the program.

The project, due to be launched during the second half of this year on a two-year experimental basis, aims at enrolling 10,000 participants who will be able to choose among a range of products provided by three fund companies. The Securities Investment Trust & Consulting Association (SITCA) is also involved in overseeing the program.

Members of AmCham’s Asset Management Committee have generally welcomed the breakthrough, but some express regret that the trial has been limited to only three fund companies. They note that one of the biggest challenges for the future of Taiwan’s pension reform is to educate more members of the public on the options they face for preparing for retirement. Involvement in the National Pension Project by more asset management companies would broaden the reach of the program in increasing public knowledge and information on financial issues.  

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