Pension reform is what everyone is hoping for. However, there are three problems — systemic unfairness, financial crisis and poverty among elderly people — which have for a long time eroded the foundation of the pension system. Although the National Pension Reform Committee’s campaign is going full-steam ahead, no conclusion satisfactory to all has been reached.
The unfairness of the pension system originated in the different standards applied to professions. Military personnel, civil servants and public-school teachers receive generous pensions, whereas workers on the labor insurance scheme receive only a limited pension. As for the jobless who join the national pension program and farmers who are eligible for the Old-Age Farmers’ Welfare Allowance Program, the sum of money received is not even sufficient to support themselves.
In addition, due to an aging population and the high benefits that some military personnel, civil servants and public-school teachers receive, a crisis in national finances looks imminent. Hence, there are three principles of pension reform: fairness, sustainable finances and intergenerational equity.
First, it is important to devise an all-inclusive pension system. A comprehensive national pension system could be based on the labor insurance scheme and include the category of military personnel, civil servants and public-school teachers. This basic pension system should be a social insurance system and the government should subsidize one-half to one-third of its expenditure. For minority groups — be they atypical workers, unemployed people, homemakers or farmers — who have difficulties paying the insurance, the government could use tax revenue to subsidize them.
There are three considerations for this measure. It establishes an equal standard, which ensures that everyone will receive benefits above the poverty line in their old age. Therefore, their financial security would be assured, and it would also ensure that the nation’s financial situation is sound. Anything above what the basic insurance covers could be transferred in various ways, and part of the responsibility for economic security in retirement could be transferred to individuals or families. That would promote social unity.
Next, the second level of the pension system should become mandatory. There are two purposes for this. The second level makes up for the shortcomings of the first level, and it attracts people with special skills. The first level provides basic financial security for people in retirement, whereas the second level imposes either forced savings or a supplementary personal pension. The basic principle is that by implementing both levels, an income replacement ratio of 50 to 60 percent should be achieved.
Third, a regulatory mechanism should be incorporated into the pension system. The financial balance of the pension system is primarily affected by two factors. The first is the population pyramid. As a result of an aging population, sub-replacement fertility and a decreasing working-age population, people have to pay more into their pensions to keep the system sustainable. The second factor is the macroeconomic situation. If the unemployment rate is high, fewer people will be able to afford to make pay their pension premiums. However, by employing a regulatory mechanism, a situation in which one generation has to pay more to sustain the pension standard of another can be avoided.
Through this reform, Taiwan’s pension system can evolve into the multi-level model that the World Bank has suggested. That would achieve fairness, financial sustainability and intergenerational justice.
Lue Jen-der is director of the Taichung City Government’s Social Affairs Bureau.
Translated by Ethan Zhan
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