Fri, Nov 02, 2012 - Page 8 News List

The Liberty Times Editorial: Reform needed to unite society again

This year’s Double Ten National Day celebration was dismal enough on its own, but worrying news coming thick and fast about workers’ pensions has put even more of a dampener on things. The Labor Insurance Fund could go bankrupt by 2027 and the Cabinet wants to remove clauses in the amendments to the Labor Insurance Act (勞工保險條例) related to the government’s responsibility to act as guarantor of last resort.

This situation has been exacerbated by the government’s constant U-turns and its decision to incorporate more benefits for retired public-sector employees — retired military personnel, public school teachers and civil servants — when the nation’s debt is on course to hit the debt ceiling.

The more than NT$20 billion (US$684.3 million) allotted for year-end bonuses for this group, together with the preferential interests rates of 18 percent for retired government employees and 13 percent for retired Citizen Bank employees, will cost more than NT$80 billion and is approaching NT$100 billion. This figure alone would go halfway to filling the gaping hole in government finances.

This starkly reveals the extent to which the government is showing favoritism to retired public servants, even when doing so threatens to push its finances to the brink of bankruptcy. Its attitude on this issue risks causing acrimony between different sections of society and creating a smoldering resentment that could burst into flames at any moment. If the situation is not handled well, the consequences do not bear thinking about.

Essentially, the retirement insurance system in this country, which includes labor insurance and pensions for government employees, operates on the unreasonable premise of low contributions and a high income replacement rate (IRR). In the case of retired public servants, the IRR is commonly higher than 80 percent, and if you add the 18 percent preferential rate on savings that they enjoy, this IRR can exceed 100 percent.

This means that some government employees could receive more money from their monthly pensions than they did from their salaries when they were still working, a situation that clearly defies logic. This is compounded by the relatively early retirement age for this group compared with other countries.

On the other hand, workers in the private sector, with labor insurance plus their pensions, can look forward to an IRR of around 64 percent. While this figure seems at first glance to be respectable, it presupposes a salary limit of NT$43,900. If a worker’s salary was higher than this figure when retiring, that IRR estimate would be a little high, and the retiree would end up receiving a lower IRR. A worker making insurance contributions for 30 years, with a salary of NT$60,000 on retirement would only receive a monthly labor insurance payment of NT$20,413.

If the pension is disregarded for the moment, that would give the individual an IRR of 34 percent. Clearly, the government’s handling of the financial crisis is biased in favor of government employee pensions and against workers’ labor insurance. If the government insists on promising further unreasonable welfare payments to retired public servants it will only bring the looming bankruptcy closer. Therefore, reform should first address government employees’ pensions, not the labor insurance system.

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