Mon, Jan 01, 2007 - Page 8 News List

Revamping the retirement system

By James Lin 林奇璋

Military personnel, civil servants and government-employed teachers have three sources of retirement funds: retirement pension funds, civil servant retirement insurance reimbursement and the 18 percent preferential savings interest rate.

Retirement pensions and retirement insurance reimbursements are drawn from the central and local governments, whereas the payment of the 18 percent preferential saving interest rate is shared among the central government, local governments and the Bank of Taiwan.

Although it arrives through different channels, the money for these retirement funds still comes from the same source.

Whether the money is withdrawn from the government's left, right or inner pocket, any deficit still must be be paid for by the government and the general public.

The Ministry of Civil Service's amendment to the 18 percent preferential savings interest rate regulation was implemented in February. Last month, the central government and the opposition parties began negotiations on a new 18 percent system, which proponents claim will save NT$1 billion (US$30.7 million) each year.

But these government actions only address the issue of the 18 percent system but fail to tackle the hidden burden of more than NT$1 trillion debt that has resulted from the old and new retirement systems for the military, public servants and government-employed teachers.

There is a serious shortage of funds for retired civil servants. Some estimates put the total shortfall at NT$3 trillion, and NT$70 billion is added to this deficit annually.

The government's total income from taxes is just above NT$1 trillion. If the retirement fund deficit remains for long, it will be compounded by interest, making things still worse. This "borrowing from future generations" is posing a direct threat to the nation's solvency.

The 18 percent reform plan, claimed to save NT$1 billion each year, may have given the cash-strapped government some respite.

However, the overall problem with civil servant retirement pension funds and insurance reimbursements remains unsolved, with the result that government debt is still rising.

The national treasury is almost empty and we cannot waste any more time procrastinating.

In fact, there are many long-standing problems with the retirement system. The 18 percent preferential savings interest rate is but one of them. The retirement age of 60, the fact that surviving spouses of public servants are able to receive 50 percent of their husband or wife's original retirement benefits, the income replacement ratio, the right to take another government job even while receiving a civil servant's pension and the ability to claim retirement funds on a monthly basis or as a one-time payment also add to the government's staggering debt burden.

The government should publish all financial information concerning civil servant retirement pensions to let the general public know the real crisis the system faces.

Then it should take a close look at the reform issue.

The 18 percent system should indeed be changed, but reforming the overall retirement pension system for public servants is a far more pressing matter.

James Lin is a fellow of the Society of Actuaries in the US.

Translated by Lin Ya-ti

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