Pension reform modeling
About 75 percent of Taiwanese are in favor of pension reform owing to the exhaustion of pension reserves in a few years.
Several factors contribute to this pension crisis: National debt has built up “to the navel” instead of “Taiwan’s money flooding to the kneecap” decades ago. The average personal income has dropped to a 16-year low. Life expectancy has increased and the childbirth rate has decreased.
The service years rendered solely to the Chinese Nationalist Party (KMT) even as “professional students” are credited to national service. The historical high annual interest rate of 18 percent is paid to many retirees on their bank deposits.
In spite of urgency and popularity for pension reform, there has been resistance and confrontations. On Sept. 3, many teachers, civil servants, military servicemen, leading KMT members, and some “fat cats” staged a massive protest in front of the Presidential Office.
They held up signs like: “Against defamation and for dignity,” and: “Tsai Ing-wen (蔡英文), an American and Japanese running dog, get out of Taiwan!” Some teachers’ representatives have withdrawn from the pension reform committee because of “the ineffective meetings.”
Pension reform is mathematical in nature and its evaluation can be greatly facilitated by developing a computer model for simulation. This pension model is based on the following equation for each year:
New balance equals last balance plus income minus payment. Based on this equation, the payment should be kept below income in order to ensure that the new balance is always larger than the last balance.
The income depends on the number of employees, their salaries and pension contributions, interest income or dividends from the last balance and, to a large extent, on the economic and employment situations. The payment depends on the number of retirees, qualified ages of receiving benefits, especially for those who work after retirement, living cost adjustments, reduction of 18 percent annual interest to a more reasonable level, and ceiling and floor levels of benefits. The incomes from peak shaving and waist thinning should be larger than the expenses for valley filling to maintain the floor benefits.
The sensitivity analysis can be made by changing the variables in income and payment in order to optimize the reform for achieving consensus and enacting legislation. A successful reform is based on sacrifice and understanding.
Charles Hong
Columbus, Ohio
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