Heaven help the pension system

By Huang Juei-min 黃瑞明  / 

Thu, Nov 08, 2012 - Page 8

“Der Fortschritt,” as they say in Germany, “ist eine schnecke.” Progress is like a snail.

How appropriate this saying is to the progress that has been made over the annual bonus payments for retired government employees — military personnel, public school teachers and civil servants. Finally, a decision has been made to reduce the number of qualifying recipients, and although progress has been excruciatingly slow, it is progress nonetheless. Unfortunately, we have but torn away the shaft: The arrow head — the handsome monthly pension payments — remains lodged in the wound, and until it is removed Taiwan’s future remains uncertain.

The pension systems of many countries owes much to the social insurance programs introduced in the late 19th century by the German chancellor Otto von Bismarck. The current German system has its faults, but at the very least it serves as a model. The maximum amount public servants can receive in Germany after 40 years of working, usually when they have reached the age of 65, is 70 percent of their salary. Given the current average lifespan, that would give the recipients 10 or so years of retirement, free from worries about how they will feed and clothe themselves. As those who are not public servants can only expect to receive a pension worth about 40 percent of their salary, the system does have its critics. However, the faults of Germany’s pension system pale by comparison to those of Taiwan.

Many government employees in Taiwan can retire at the age of 50 after only 25 years of paying contributions, in what is known as the “75 system ,” (50 plus 25) and still receive a pension close to their full salary. Some military personnel are even allowed to retire as early as 40 years old. Simply by setting aside 7 percent or 8 percent of their basic salary every month, equivalent to no more than two years’ salary over their entire working life, the average retired government employee can look forward to 20 or 30 years of pension payouts from the state. Where else in the entire world can you get terms that generous?

The system has been in place for a long time, and the prevailing wisdom is that it was originally implemented because at the time government employees received very small pensions. Well, this is as may be — although were pensions for ordinary people any better several decades back? However, the reason the issue is getting increasingly contentious is because of the structural collusion lurking in the shadows. That the Chinese Nationalist Party (KMT) is reluctant to reform the system because it relies on the votes of government employees requires no further explication. Additionally the institutions in charge of this matter — from the Examination Yuan and the Directorate-General of Personnel Administration to the Ministry of National Defense and the Ministry of Education — are all exploiting their positions. The officials responsible for making the relevant decisions are the very people who stand to benefit from those decisions.

Intellectuals should be the conscience of society, but as many academics have a vested interest in the system as it stands, they choose to remain silent on the issue. Conferences held by social welfare academics are few and far between, and the issue of retired government employee pensions is almost never broached. These elites are to be found in both the KMT and the Democratic Progressive Party (DPP), all the way to the top, and this explains why the DPP only addressed the 18 percent preferential interest rate when it was in power and left the monthly pension payments alone.

As far as Taiwan is concerned, the issue is no longer about whether the system is fair and just. There is a real concern over how much longer the nation can afford payments of as much as NT$240 billion (US$8.2 billion) — a figure higher than government revenues from income tax. Press reports over the last few days that the government employees’ pension fund will go bankrupt by 2029 may well be overly optimistic. In the next eight years the large numbers of government employees still on the “75 system” are likely to retire en masse as soon as they are eligible to do so, and this is sure to speed up the depletion of the pension fund.

It is possible for countries to go bankrupt. If you do not believe it, you need look no further than Greece. When the day comes, as come it must, that civil servants, both retired and still working, get together in a show of force to protest any changes to their pensions, Taiwan’s economy will not be too far from the brink of collapse.

If the government has any intention to set the country on a sustainable path it is going to have to undertake a thorough reform of the pensions system, one way or the other. In particular, this means a considerable reduction, applied retroactively, in the pension packages of retired government employees. However, given what Examination Yuan President John Kuan (關中) and Minister of Civil Service Chang Che-shen (張哲琛) have been saying, all we can do now is pray.

God bless Taiwan.

Huang Juei-min is a law professor at Providence University.

Translated by Paul Cooper