Sat, Feb 23, 2013 - Page 8 News List

Pension reform retains inequality

By James Lin 林奇璋

If a civil servant’s final salary is NT$60,000, then their basic salary is NT$60,000 divided by 1.55, which is approximately NT$38,710. Based on that figure, they will receive a (Tier 2) occupational monthly pension of NT$50,710, plus (Tier 1) interest under the GESSI of NT$7,806 (including both the preferential 18 percent interest rate and non-18 percent interest).

If the (Tier 1) GESSI lump sum retirement payment is converted to monthly pension payments, as under the old Labor Standards Laws, a monthly pension of NT$13,378 will be received, putting the income replacement ratio at 97.5 percent or 107 percent. The income replacement rate for state employees will remain around the same as it is now.

Following the proposed reforms, the scales will continue to be tipped in favor of state employees.

The income replacement ratio of private-sector workers’ pensions will still be significantly lower than in the state sector. In other words, occupational inequality will still exist.

It is expected that reforms to the Labor Insurance Fund will be implemented next year, whereas reforms to pensions for state employees will not start until 2016 and will be introduced gradually over a 10-year transitional buffer period. Reforms will not be implemented at the same time for employees in the state and private sectors.

The Ma administration claims that its reforms will ensure that the Labor Insurance Fund can go on operating without worries for 30 years while attaining a fiscal balance, yet its proposed reforms will allow the pension fund for public-sector employees to keep running up debts, the burden of which will be borne by future generations. This is a form of intergenerational injustice.

Reforms to the pension system are bound to involve sacrifice. It cannot be done without pain. However, the government cannot expect private-sector workers to make sacrifices to balance the nation’s finances while allowing public-sector employees to nibble away at the wealth of the next generation.

If the Ma government really means to eliminate occupational inequalities and intergenerational injustices, it will take wisdom and determination to achieve it.

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

Translated by Julian Clegg

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