The Liberty Times Editorial: Reform needed to unite society again

Fri, Nov 02, 2012 - Page 8

This year’s Double Ten National Day celebration was dismal enough on its own, but worrying news coming thick and fast about workers’ pensions has put even more of a dampener on things. The Labor Insurance Fund could go bankrupt by 2027 and the Cabinet wants to remove clauses in the amendments to the Labor Insurance Act (勞工保險條例) related to the government’s responsibility to act as guarantor of last resort.

This situation has been exacerbated by the government’s constant U-turns and its decision to incorporate more benefits for retired public-sector employees — retired military personnel, public school teachers and civil servants — when the nation’s debt is on course to hit the debt ceiling.

The more than NT$20 billion (US$684.3 million) allotted for year-end bonuses for this group, together with the preferential interests rates of 18 percent for retired government employees and 13 percent for retired Citizen Bank employees, will cost more than NT$80 billion and is approaching NT$100 billion. This figure alone would go halfway to filling the gaping hole in government finances.

This starkly reveals the extent to which the government is showing favoritism to retired public servants, even when doing so threatens to push its finances to the brink of bankruptcy. Its attitude on this issue risks causing acrimony between different sections of society and creating a smoldering resentment that could burst into flames at any moment. If the situation is not handled well, the consequences do not bear thinking about.

Essentially, the retirement insurance system in this country, which includes labor insurance and pensions for government employees, operates on the unreasonable premise of low contributions and a high income replacement rate (IRR). In the case of retired public servants, the IRR is commonly higher than 80 percent, and if you add the 18 percent preferential rate on savings that they enjoy, this IRR can exceed 100 percent.

This means that some government employees could receive more money from their monthly pensions than they did from their salaries when they were still working, a situation that clearly defies logic. This is compounded by the relatively early retirement age for this group compared with other countries.

On the other hand, workers in the private sector, with labor insurance plus their pensions, can look forward to an IRR of around 64 percent. While this figure seems at first glance to be respectable, it presupposes a salary limit of NT$43,900. If a worker’s salary was higher than this figure when retiring, that IRR estimate would be a little high, and the retiree would end up receiving a lower IRR. A worker making insurance contributions for 30 years, with a salary of NT$60,000 on retirement would only receive a monthly labor insurance payment of NT$20,413.

If the pension is disregarded for the moment, that would give the individual an IRR of 34 percent. Clearly, the government’s handling of the financial crisis is biased in favor of government employee pensions and against workers’ labor insurance. If the government insists on promising further unreasonable welfare payments to retired public servants it will only bring the looming bankruptcy closer. Therefore, reform should first address government employees’ pensions, not the labor insurance system.

Compared with other countries, the IRR of 80 percent or above enjoyed by retired government employees in Taiwan is higher than the Organisation for Economic Co-operation and Development’s average of 58 percent, and lower only than that of Greece and Spain, both of which are currently embroiled in sovereign debt crises.

Taiwan is gradually going the way of Greece and Spain. According to estimates, the military personnel’s retirement fund will be bankrupt by 2019, the fund for teachers and the Labor Insurance Fund will go bankrupt by 2027 and the civil servants fund will be bankrupt by 2031. Yet, consider this: Unless something changes, the Labor Insurance Fund and the retirement pensions fund will both go bankrupt, but with a glaring difference. The retirement pensions for government employees will be guaranteed by the government — as it is clearly documented that the government will act as guarantor of last resort for these pensions — whereas more than 9 million private-sector workers will have to take government officials’ word for it that their labor insurance payments will be made.

However, there is not too much trust in the government at the moment and it will have trouble convincing the workers that their futures are safe unless it enshrines this liability into law.

The case could be made that as all the pension funds face bankruptcy and since the government employees’ fund is in the most dire situation, reform should start from there. However, reform must address all of the funds, and should be applied across the board in a rational fashion — emotions and favoritism have no place here. People should not be treated differently or have different rules applied to them because of their job or role in society.

Reform should also rebalance contributions and payments, and defer receipt of payments. Contributions should be increased, the IRR should be lowered and the retirement age should be increased.

Only when this is done will Taiwan have a sustainable social insurance system.

Policies that disregard the government’s current financial situation in favor of catering to a specific section of the electorate will only serve to move a set of burdens elsewhere and leave this generation’s problems to the next generation. This not only causes conflict between different areas of society, but also creates tension between generations. This is the wrong way to go.

Worryingly, it is already abundantly clear what needs to be done to reform the retirement insurance system, but the government, in what it says, what it does and in its very mindset, is firmly on the side of pensions for retired public servants. It is only prepared to take the knife to the Labor Insurance Fund.

From what the government is doing now, it is not just the 18 percent preferential rate or the annual bonus payments, none of which make sense, are fair, or have any basis in law: All of the proposed reforms are targeting private-sector workers and do not in any way involve military personnel, state school teachers or civil servants, and this is something that the more than 9 million private-sector workers in this country will find completely unacceptable.

Chiang Kai-shek (蔣介石) and his successor Chiang Ching-kuo (蔣經國) relied on government employees to consolidate their power base in Taiwan when they came over from China with the Chinese Nationalist Party (KMT) in tow. This is the historical reason for the KMT’s favoritism toward that group. However, times have changed and Taiwan is now a democracy. Whatever the historical reasons, there is no excuse for maintaining the existence of an unreasonable system.

If the administration of President Ma Ying-jeou (馬英九) is serious about pushing through this reform, it has to have the courage to dispense with historical baggage and remove these artificial and unfair obstacles to bring about fairness and justice.

If, on the other hand, the government insists on protecting vested interests and favoring certain groups, it is going to make a lot of people very unhappy and in the end these people will take to the streets to demand Ma’s head.

Translated by Paul Cooper