There is one thing that, if the government were able to accomplish it, would ensure fairness and justice — including generational, occupational and transitional justice — which would revive the low public trust in politics.
What is this magic issue? Pension reform. All politicians understand this.
That such reform has been delayed is evidence of the enormous difficulty of the challenge, which has given pause to addressing the issues, because leaders are concerned about their place in history if they were to fail at the task.
Pension reform is difficult because it is a problem that has accumulated over a long time and because it involves people and their interests. The examples of failed attempts at pension reform in both the East and the West are too numerous to count.
With the establishment of the Pension Reform Task Force in 2009, President Ma Ying-jeou’s (馬英九) government launched pension reform and in 2013, the government proposed a draft bill to the legislature.
Ma called on the public to support the bill, saying that if the pension system was not reformed, the nation would live to regret it. However, the Chinese Nationalist Party (KMT) and its lawmakers hesitated because the party would lose either way: If the system was not reformed, the nation would go under, while if it was reformed, the party risked losing government power anyway.
In the end, after having lost public support, the party lost both the presidential and legislative elections in January in the biggest landslide defeat in the nation’s history.
The moral of the story? If a party does not implement pension system reform, it will not hold on to government power.
Pension reform was one of president-elect Tsai Ing-wen’s (蔡英文) campaign promises. She estimated that she would be able to put forward a solution within six months before holding a holding a national conference to build consensus behind a proposal, hoping to complete the process within about a year.
Following her inauguration on May 20, everyone will keep a close eye on the progress toward reform to test her government’s determination and ability to execute.
Because this is a tight schedule, the best and most pragmatic approach to creating an understanding for the need for reform, resolving opposition and getting the process moving to achieve quick results and address the most pressing issues would probably be to discuss the lessons from past failures and to set a series of staggered goals.
According to data from the Public Service Pension Fund Management Board, the pension fund for military personnel had a deficit of NT$3.9 billion (US$117.96 million at current exchange rates) in 2014, and it is estimated that it will go bankrupt in 2018.
The pension fund for public-school staff had a deficit of NT$400 million, and is expected to follow the military pension fund into bankruptcy by 2026.
The pension fund for civil servants is doing slightly better, but it might be bankrupt by 2029.
Not being able to collect one’s pension is no longer just a potential problem, it is a full-blown crisis. Military personnel, civil servants and public-school teachers will be the first to face this crisis, and they should all support pension reform to stabilize the finances of their own pension funds.
There is no longer any room for delaying such reform by reviling it as a “class struggle” or stubbornly continuing to resist it by talking about “legitimate expectations.”
To speed up reform and force society to wake up, the new government’s pension reform effort should focus on providing concrete measures to alleviate the public pension funds’ slide toward bankruptcy.
There are three ways to accomplish this: amending the law to increase contribution rates, appropriating government budget to cover the losses of the funds and lowering the controversial 18 percent preferential interest rate that certain military personnel, civil servants and public-school teachers receive.
Among these measures, the preferential savings interest rate — on part of the pensions — for government employees who retired before 1995 is a source of controversy at every election. Since it is unfair to public employees whose pensions are only eligible for the regular savings interest rate, the new government should focus on building consensus on this issue.
An investigation into the reasoning behind the design of the public pension system shows that it was intended to multiply the regular two-year time-deposit rate by 1.5, and use this as a floating standard for calculating the preferential rate.
It was only in 1960 that the preferential rate was fixed at 18 percent as the result of an administrative order.
Compared with the average annual local bank deposit rate over the past 35 years, the 18 percent preferential rate has been at least twice as high as the average deposit rate, which reached a high of 9.16 percent in 1982. The average interest rate on deposits has remained at or below 1 percent since 2003.
These numbers serve as a good reference when deciding by how much the 18 percent preferential interest rate should be cut.
For the long term, pension reform must lower the income-replacement rate to an appropriate percentage. At the moment, the post-retirement income-replacement rate for military personnel, civil servants and public-school teachers is more than 90 percent.
Former Examination Yuan president John Kuan (關中) several years ago proposed that it should be lowered to 80 percent, but that proposal was blocked by KMT lawmakers.
This issue could be subjected to a rational estimate by comparing Taiwan’s situation with the US and European countries, which generally offer an income-replacement rate of 60 to 70 percent.
After winning a legislative majority in January, the Democratic Progressive Party (DPP) government should take this historic opportunity, which has arisen for the first time in 60 years. The DPP should build a modern, healthy and normal public pension system to complete part of the puzzle of transitional justice.
As society has been paying increasingly close attention to pension reform in recent years, many flexible ideas have been discussed on online community platforms. For example, in light of the fact that Taiwanese retirees often travel abroad and increase their consumption, some suggest that consideration should be given to the possibility of boosting domestic consumption through pensions, for example by replacing part of their pensions with consumer vouchers to promote a positive economic development cycle.
There have been many similar creative suggestions, some good, some bad, and government agencies could perhaps pick some of them up and assess their feasibility and promote dialogue.
Ma’s warning that “if we do not reform the pension system today, we will live to regret it” is unfortunately coming true.
Reform of the pension system is being forced upon the nation and can no longer be delayed. It should be the focus during the incoming government’s first year in office.
Translated by Eddy Chang
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