In some respects, the much-touted national affairs conference on pension reform on Sunday was little different from those of previous years, with no end of disputes inside the venue, no end of protests outside and no consensus at the end it all to speak of.
However, there is consensus on the basic necessity for pension reform — and the complexity of the problem. The conference was just the beginning of the process. The battle will now move to the Executive Yuan, which will have to hammer out an acceptable proposal to be submitted to the legislature.
The pension reform blueprint the government has put forward, requiring higher premiums, smaller payouts and later retirement ages is, overall, a move in the right direction.
President Tsai Ing-wen (蔡英文) and Vice President Chen Chien-jen (陳建仁) announced that the pension they would receive on the conclusion of their terms in office would not exceed the income ceiling proposed in the pension reform — that is, it would fall from about NT$300,000 to NT$75,000 (US$9,560 to US$2,390) per month.
Leading from the top might go some way to stemming pressure from opponents of the proposals.
However, when the income replacement rate (IRR) in many advanced economies — the US and Japan included — is about 50 percent, and when even Greece — where the pre-debt crisis IRR was higher than that of Taiwan — has been forced to drop the rate to a little more than 50 percent, it could be argued that the adjusted 70 percent rate in Taiwan for retired public-school teachers does not go far enough.
In the past, the pensions of public-sector employees — military personnel, civil servants and public-school teachers — could only be adjusted via executive order, not by legislation. Having executive orders eat into the incomes of people and into budgets available for other things has denuded the national coffers, denied our children generational justice and threatened to bankrupt the nation’s finances. It is right and imperative that the government listens to the public and puts a stop to this practice.
Many civic groups are advocating reducing the IRR to 60 percent within 10 years to ameliorate generational injustice, and this is certainly worth considering. The government’s proposals are not a sustainable option, as they would only keep the wolf from the door for another 10 years or more, pushing pension fund bankruptcy back to 2043. Even if the current proposals were implemented, Tsai’s successor will still have to deal with the issue again. Far better to reduce the IRR from 70 percent to 60 percent, which would stave off imminent bankruptcy to about 2056.
With regards to the 18 percent preferential interest rate on pension savings for public-sector retirees being ended in six years’ time, many people believe that the rate has no legal basis — being supported only with an executive order — and that waiting six years for it to be abolished is far too long.
Critics say that the time frame should be shortened to three years as once the preferential rate is no more, the government will save more than NT$40 billion per year.
There is also the argument that freelance, self-employed or non-wage earners, such as freelance creatives, stall holders and housewives, also make significant contributions to society, yet only receive a national pension of about NT$3,000 per month. The money saved by doing away with the 18 percent preferential interest rate could be used to provide better pensions for these groups.
Many people stand to lose out from the proposed reforms and are not happy. However, reform would mean a fair, more just and more sustainable system.
A recent opinion poll found that more than two-thirds of the public support pension reform. The government should ride this wave of public support and take a cleaver to the old system to achieve long-term reform.
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