Wed, Feb 20, 2013 - Page 8 News List

New pension reforms offer hope

By Lin Cho-shui 林濁水

It looks as if a solution has been found to the pension issue — and in particular the pension system for public servants — that threatened to send Taiwan the way of Greece. If this turns out to be true, this reform will be of comparable significance to the first direct legislative and presidential elections and the downgrading of the nation’s provincial government to a nominal institution in the 1990s.

Despite the lack of agreement, the lingering concerns and the frayed tempers, there is much to be positive about.

On Jan. 30, the Chinese Nationalist Party (KMT) and the Democratic Progressive Party (DPP) both announced their pension reform proposals. Policy-wise, this is the most important political penalty shoot-out in a decade or so of clashes between the two sides.

Without doubt, the DPP’s proposal is more detailed, comprehensive and ideal in terms of age of eligibility, risk sharing, portability, clarity, income replacement rate and the handling of the 18 percent preferential interest rate on savings issue.

The KMT’s offering has a relatively cobbled-together feel and caters to several vested and not entirely legal interests.

Although Examination Yuan President John Kuan’s (關中) proposal for retired public workers — military personnel, public school teachers and civil servants — is more generous than one might find in a normalized country, the reduction of the income replacement rate from a maximum of 140 percent to 80 percent is more significant than in the 1992 reforms or in former president Chen Shui-bian’s (陳水扁) 2005 reform, and this is to be applauded.

The KMT is evidently aware of the failings of its own proposal, as the party emphasized that the system would be subject to review every five years. It thought this would solve the problem, but the DPP said that changes in the pension system should address a whole generation, and that raising the possibility of introducing changes every five years would certainly lead to headaches and was far from ideal.

The strangest thing is that for all the noise it made about this issue in the past, nobody in the DPP seems to have brought up any of these more advanced recommendations before –– Why the preoccupation with the 18 percent preferential rate when this was just one of many evils with the KMT’s chaotic and self-serving 1992 proposal?

Even more serious was the different methods for calculating multiplication factors for the basic salary, and the way in which public sector workers were strangely divided up into different categories for what provisions were to be made for them. Some were ridiculously generous, giving some monthly pension payments of more than NT$200,000 when the 18 percent interest rate on savings was factored in, resulting in an income replacement rate of 140 percent, while others were left by the wayside and given a more reasonable pension.

The DPP glossed this over, preferring to criticize the 18 percent rate, whether it made sense to or not, simply because it was something “the public could understand” and was the best way to maximize its political point-scoring. The problem was this created resistance to reform and allowed the culprits to get away with it, and for the unreasonable measures to remain in place.

When Chen’s 2005 proposals met with a backlash, whenever Kuan mentioned reform the DPP on the one hand responded by concentrating solely on the 18 percent rate and on the other hand by refusing to offer anything else of substance in terms of reform. Instead, it smiled happily as pan-blue supporters turned on Kuan, one of their own, and refrained from voting, happy that it was not the DPP itself that was stirring up the hornets’ nest.

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