Sun, May 05, 2013 - Page 8 News List

Backing the right pension system

By Edward Wu 吳明儒

Now that the government has finished drafting its pension reform paper, the battle over its final form is set to commence in the legislature. Workers’ groups took to the streets on Wednesday — International Workers’ Day — to protest the proposals. Workers are angry that their living standards, far from improving, are falling to those they were at years ago. The logic of the official response was that there will only be something left for future generations if people are prepared to accept a degree of austerity right now.

In this reform package the government has opted to go with Plan B, reducing the income replacement rate (IRR) percentage base that is multiplied by years worked to calculate one’s final IRR. This base rate is to remain at the current figure of 1.55 percent on salaries up to NT$30,000, but will fall to 1.33 percent on salaries of NT$30,000 to NT$43,900.

The proposals also say that the insurance premium rate is to gradually rise from the current 9 percent to 18.5 percent, with incremental annual increases and a review when it reaches 12 percent.

The Democratic Progressive Party (DPP) wants this to be capped at 16.5 percent, together with the requirement that pension reform for retired publicsector workers — state school teachers, military personnel and civil servants — is completed before private-sector pension reform is tackled, in an attempt to decrease the gap between public and private-sector pensions in this wave of reforms.

Clearly, both the governing and opposition parties have, regardless of their conclusions, focused on a subtractive logic: “pay more, receive less, receive it later.”

The main objective in this is to get the insurance fund back to a healthy position financially, and to re-establish the public’s trust in the social insurance fund that it will not go bankrupt.

However, these reforms have been decidedly muddy on the issues of intergenerational justice, professional mobility and the falling birth rate.

The labor insurance IRR Plan B, for example, is generous to workers with low salaries, but not at all kind to those with higher salaries — although when we say higher salary, we are talking of a maximum of NT$43,900 — creating an intra-generational transfer of wealth, as opposed to the Plan A approach in which, when one has exhausted one’s accumulated paid-in contributions, one’s pension reverts to a lower IRR, with the implications of this for the intergenerational transfer of wealth. This would have had too much of an impact on too many souls, and this is why that plan was dropped.

It is a pity that this set of pension reforms will not touch upon the private pension schemes that exist above and beyond the basic state pensions: The government could have used fiscal and tax incentives or deferred tax incentives to offset the parts of the reform that workers believe will harm them.

This would not only revitalize the commercial pensions market, but would also make the public feel that it is getting something to compensate for what is being taken away.

Second, despite the inevitability of having to push back the retirement age in line with the current trend, one cannot take the impact that this will have on professional mobility within the labor market too lightly. Remember that the previous labor insurance system incorporated a component allowing one to increase — or reduce — the size of one’s pension, depending on years worked.

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