Fair and just pension reform
Following the latest transition of power, President Tsai Ing-wen (蔡英文) has finally been given the opportunity to carry out reform in accordance with the will of the majority of Taiwanese. It is inevitable that this will lead to protests from vested interests and as a wave of protests rolls through Taiwan, military personnel, civil servants and public school teachers will take to the streets, and the Chinese Nationalist Party (KMT) will do what it can to take advantage of these protests and build momentum.
For the sake of the survival of the Republic of China (ROC) and in order to avoid a complete collapse of the nation’s various pension systems, Tsai and her government must steel themselves as they prepare to deal with this issue. As they do so, the public stands behind them, on the side of reform.
For a long time now, the media have failed to report on the fact that one of the retirement pension systems is more stable than the others — the public service pension insurance system at private schools.
Private-school teachers have remained silent all along, gratefully picking up their monthly pensions of about NT$20,000. Can other groups and organizations hold a candle to their example?
A retirement pension is calculated based on an income replacement rate of a mere 1.3 percent. This number is then multiplied by the number of years worked and the insured salary to arrive at the monthly payout. This is even lower than the income replacement rate of labor insurance, which is 1.55 percent. The rest of the retirement payment is transferred in a lump sum to an individual’s bank account as a one-off payment.
I am proposing a fair and just pension reform plan that would allow all pension systems to give the same payout, including labor insurance. The basic pension — for example, the pension payments received under public service insurance — could be calculated using a replacement rate of 1.3 percent, while the remaining part, which is the sum that is paid out under the old pension system or the new pension system that was introduced in 2009, could be calculated based on a replacement rate of 0.65 percent.
The replacement rate for those falling below the threshold would be 1.3 percent and for the rest it would be 0.65 percent.
For example, someone who used to receive a monthly pension of NT$70,000 would receive NT$45,000, namely, NT$20,000 plus half of NT$50,000, and someone who used to get NT$120,000 would get NT$70,000. That would be enough to guarantee their retired life and it would also greatly reduce the burden on the pension system.
As for the preferential interest rate, that could be calculated based on the interest rate differential. When the 18 percent preferential rate was first introduced, the general interest rate was about 12 percent. Today, it is only about 1 percent, so the preferential interest rate should be 7 percent — 18 percent minus 12 percent with the addition of the 1 percent interest rate.
Furthermore, the 65-year retirement system could be further reinforced in such a way that anyone who wants to retire before that age would get a reduced pension.
Chu Hiu-hsien
Taichung
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