After being admonished in public by Taipei Mayor Ko Wen-je (柯文哲), former Xinyi District (信義) police chief Lee Te-wei (李德威) left his position and, together with his wife, began working for the Hon Hai Group, earning a great deal more than they did as public servants. Media reports estimate that Lee and his wife, aged 54 and 55 respectively when they retired, are also entitled to about NT$90,000 in monthly pension on top of their income.
This case highlights three major problems with the pension system for public servants — that is, military personnel, public school teachers and civil servants: first, the excessive size of the pension; second, retirees can still receive pension payments even if they secure other employment; and third, the inordinately high pension replacement rate.
One of the main reasons behind Greece’s debt crisis is the nation’s early retirement age and generous pension system, according to an analysis by the EU.
Eurostat figures from 2012 showed that the average age of people receiving their pension for the first time in Greece is 57.8, compared with 63.6 in Sweden and 61.1 in Germany. In the US, even if you fulfill the retirement criteria, you can only start collecting your pension from the age of 62. In this regard, Taiwan clearly outdoes Greece.
In order to maintain growth over the long term, Germany has increased the age for which one becomes eligible for a standard pension to 65 years and four months, while in the US, it is 65 years and six months. However, the two nations plan to increase the age to 67 this year. If Lee and his wife lived in the US or Germany, or even Greece, they would not have started receiving their pensions.
Most of the pension systems in advanced nations factor in income from post-retirement jobs. For example, US law stipulates that US$1 be deducted from a retiree’s pension for every US$2 they earn over US$15,720.
However, in Taiwan, retired public servants can work and earn an income without their pensions being affected. One would be hard pushed to find a more favorable system anywhere else in the world — especially with a high replacement rate and an 18 percent preferential interest rate on savings.
On June 18, the Council of Grand Justices issued Interpretation No. 730 to deal with calculating second pensions, using as an example a retired public servant taking up a new position teaching in a state school, and found that it was unconstitutional to use an administrative order to set a ceiling on a second pension.
From a legalistic view point, this finding is proper and correct. However, from a public welfare standpoint, Interpretation No. 485 is, perhaps, more appropriate.
This interpretation states that “in light of limited state resources, the legislation of social policies has to consider the following factors to make an appropriate allocation of welfare resources: the economic and financial conditions of the state, and the principle of resource utilization, as well as attending to the equity between beneficiaries and other people. The legislation should also consider the beneficiaries’ finances, income, family support costs and welfare needs. It should not base considerations for special treatment on the beneficiaries’ position or status. The rules governing the ways and amount of provision should also be consistent with the basic needs of beneficiaries, and should not exceed the extent necessary for welfare purposes, thus resulting in overprovision.”
According to media reports, 60 percent of the nation’s annual income taxes is spent on financing pensions for retired public servants. However, calculating expenditures that go into paying pensions is not a simple task. There are the central government payments to retired military personnel, public school teachers and civil servants, and then payments to teachers and civil servants at the local government level, in addition to the 18 percent preferential interest rate at both central and local government levels, so the figure is likely to be higher than 60 percent.
Also, the average retirement age for public servants is far lower than that of recipients of national labor insurance pensions and other pension schemes; the former’s income replacement rate is also much higher than that of private sector workers.
As Aristotle said: “Everywhere inequality is a cause of revolution.”
Interpretation No. 485 put it well in about 100 words, but who is going to follow through on it? Those in power? Those with vested interests? The general public? The next generation? Taiwan is undoubtedly heading the way of Greece. The burden on the national coffers is unsustainable. When the levee breaks, everyone is going to know about it. When it does, what good will all those numbers in people’s bank books do them?
Kuo Ming-cheng is a professor at National Chengchi University’s Department of Law. Chen Jwu-shang is an associate professor at National Kaohsiung Normal University’s general education center.
Translated by Paul Cooper
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