Sat, Mar 23, 2013 - Page 8 News List

Who really pays for the nation’s pensions?

By Lin Fang-ting 林芳婷

A few days ago a senior labor union leader stated that pension payments under the Labor Pension System are less than the benefits payable to members of the poorest grade of low-income families, and that he was opposed to both of the alternate pension reform plans proposed by the government.

He said he was against extending the number of years worked, for which the average salary earned is used as a basis for calculating retirement pensions. He also said he was opposed to cutting the income replacement rate of pensions and to increasing the premium rate.

These complaints aim to safeguard workers’ interests. However, seen from the aspect of long-term sustainability of the pension fund and balancing the rights and interests of different generations, younger workers might not agree with the aforementioned standpoints.

The Labor Pension Fund is like a reservoir. It needs to have fresh water fed into it all the time, in the form of contribution payments and good investment performance, if it is to provide sufficient outflow in the form of pension payments.

The way pension contributions are calculated is something that politicians have hitherto been unwilling to consider, and it is a point on which doubts have been aired concerning professional unions — those that handle labor and health insurance for people who do not work for a specific employer.

It creates a loophole that encourages workers not to pay contributions honestly based on their real incomes. As long as workers pay more premiums when they come close to retirement, they will still receive higher annuity payments — but who ends up paying for this?

Another issue is, while some people oppose raising pension fund premium rates, they also want to increase the income replacement rate. Consider for example an older worker who receives an average pensionable monthly salary of NT$25,200 (US$845) and has been working and paying pension fund premiums for 30 years. The worker’s self-paid premiums will add up to no more than NT$140,000.

Once the worker starts drawing a pension, he or she will be paid NT$140,000 in the first year and NT$700,000 in the first five years, which equals the sum of all the premiums paid by the worker, employer and government. During the sixth to eighth years of retirement, the pensioner will collect the yield, but who will pay for their pension during the ninth to 24th years of retirement?

The government is largely to blame, for siding with capitalists. It dares not increase the differentials for workers’ pension fund premiums, or recognize that the second layer of professional pensions is paid out of workers’ salaries. It uses capital from workers’ pension funds to prop up the stock market and the fund is poorly managed. Consequently, the pension fund shortfall keeps growing. We cannot keep evading these problems.

The mistake should not be made of comparing social relief payments with basic pensions, otherwise what need would there be for national pensions?

To safeguard workers’ interests, the issue of payouts must be honestly addressed. Not reforming the system may be an option, but it would accelerate the bankruptcy of the Labor Pension System and would fail to look after intergenerational rights and obligations. It would mean that those who retire and get their pensions first would be winners, while the outcome would be three times worse than otherwise. That is the situation that the pension scheme for civil servants and teachers is already in.

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