Thu, Jun 03, 2010 page8

• Taiwan’s pensions outdo Greece

  • By Huang Juei-min 黃瑞明
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  For the past few months, any mention of the word “Greece” has had the Germans fuming. Greece is the problem child of the euro family. For the sake of overall stability, other EU member states have accepted the pain of bailing out Greece. The trouble is that Greece has been living beyond its means for many years, so what right does it have to ask others for assistance now that it is on the verge of bankruptcy?

  What angers Germans the most is that Greeks are notorious for dodging taxes, leaving their national treasury heavily in debt. However, this has not stopped Greek governments from feathering the nests of civil servants by providing them with more and more benefits. The German newspaper Bild, which has been vehement in opposing the bailout plan, recently published a dumbfounding comparison of two countries’ pension systems.

  On average, Germans work for 45 years and must wait until they are 67 to retire on a pension. Their pensions are just a bit more than 40 percent of their monthly salary when employed, averaged out from their first job to their last. In contrast, Greeks need only work for 35 years before they can retire on a monthly pension of 70 to 80 percent of what they earned in the last month before retirement. Greeks can also get 14 months of pension payments a year, whereas Germans only get 12 months of payments.

  Greece’s two main parties have taken turns in government, and whoever gets into power rewards its own people with civil service posts. This has increased the country’s financial burden.

  The response from Germans is: “We are having a tough time ourselves, but now we have to spend our hard-earned money to pay for middle-aged pensioners in Greece. Is that reasonable?”

  Now the Greek government has no option but to grit its teeth and set about reforming the pension system. Under pressure from the EU and the IMF, it is taking the crisis as an opportunity to cut pensions. Taiwan’s government would do well to take note.

  Under Taiwan’s system, military personnel, public servants and teachers only have to work for 25 years and reach the age of 50 before they can retire. Because 25 plus 50 equals 75, some call it the “75 system.” These retirees draw a monthly pension equal to 100 percent of their salary, and they receive it for the rest of their lives. This may well be the most generous retirement pension scheme in the history of the world — even the Greeks must be envious. Taiwan’s military personnel, civil servants and teachers pay just 7 percent of their salaries for labor insurance payments, about the same as Greeks pay, and much less than the 10 percent paid by Germans.

  This cozy arrangement can’t go on for much longer. In the case of military personnel, who enjoy the most generous pension scheme of all, last year it was reported that for the first time, the military pension fund’s income failed to cover its expenditure. With many public servants and teachers approaching retirement age, more financial problems are inevitably looming.

  The government has finally woken up to the seriousness of the situation, and in response it has come up with two reforms. The first is to eliminate a minority of public servants whose performance is not up to scratch by dismissing those who receive a “C” grade in year-end evaluations three times. The second and more important measure is to bring in an “85 system,” meaning that these government employees must either work for 25 years and retire at 60, or work for 30 years and retire at 55 to receive a full pension. If the draft law containing these measures is passed by the legislature at the end of this year, as scheduled, the new system will come into effect on Feb. 1 next year. However, the bill faces a lot of opposition, especially from entrenched interests in the education sector.

  Compared with the “75 system,” the “85 system” is far more reasonable, but the government’s resolve to implement reform still falls short of its Greek counterpart. Under the proposed new system, the people affected would retire just 10 years later than they do now and have to work for 30 years at most, after which they would still receive a pension equal to 100 percent of their salaries. Can our state finances really handle such an arrangement?

  The biggest problem with the proposed reform is that it does nothing about the tens of thousands of people for whom the old system still applies. Taiwan’s national debt has long since exceeded its GDP. How much longer can our economy hold up if we continue paying for these retirees to live the life of Riley?

  As the “Greek tragedy” unfolds, we Taiwanese sitting in the audience should be worried about how the plot will unfold in our own drama.

  Huang Juei-min is a law professor at Providence University.

  TRANSLATED BY JULIAN CLEGG
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