Civil servants’ incredible pensions

By Lin Cho-shuin 林濁水  / 

Fri, Nov 09, 2012 - Page 8

The current retirement pension system for civil servants was adopted by the legislature in 1992 and implemented in 1995. To understand how excessive it is, let us take the case of a fictitious civil servant who had been working for 15 years by 1995, assume that he will retire at the highest of the mid-level ranks in 2015, and see how much he will get on retirement.

On retirement — discounting the government’s recent 3 percent salary increase — his salary will consist of a basic salary of NT$45,665, a professional supplement of NT$25,010 and an annual bonus that averages NT$8,834 per month. Deducting about NT$10,000 in taxes leaves a total of about NT$70,000 per month.

This does not take into account the fact that the monthly retirement payment for those civil servants that are still on the old retirement pension system — and getting an 18 percent interest rate on a specified portion of their retirement money — is NT$76,205, giving a substitution rate of more than one. There are two reasons for this incredible figure.

First, the base unit for calculating the retirement pension in the old system was one basic salary. For the first 15 years, civil servants earned five base units toward their pension per year, and for the last 15 years, one unit per year, thus getting 90 units, or basic salaries. In the new system, the unit equals two basic salaries, which can be accumulated for 35 years, two units for each year, giving a total of 70 units. Since the unit equals two basic salaries, this amounts to 140 units in the old system. This means that the new system is far more rewarding.

In particular, the last 15 years of employment in the new system — in which recipients accrue two basic units, worth two basic salaries, every year — works out at four times the amount of the old system, adding 60 basic salaries to the retirement pension instead of 15, and is therefore four times as lucrative.

Civil servants should only be able to choose between remaining in the old system or using the new system, but the officials directing the creation of the new system were at the age where they would span both systems. They therefore kept the more beneficial first 15 years of employment in the old system and added the more rewarding rules for their remaining 20 years in the new system. This amounts to 155 basic salaries under the old system — 15 years at five units per year, amounting to 75 units, and 20 years at two units (each being equal to two basic salaries, thus equaling 80 units in the old system), which works out at 155 units (or salaries). This is precisely what Chu Wu-hsien (朱武獻) meant when he said it was a mistake to combine the two systems.

However, it is not a mistake. It is fraudulent.

The second reason is that civil servants’ salaries consist of a basic salary and a professional supplement. The retirement pension should be calculated from these two figures, but for high-ranking officials, the basic salary is higher than the professional supplement, while it is the other way round for lower-ranking officials. For example, a civil servant of the first rank has a basic salary of NT$14,660 and a professional supplement of NT$17,190, while the figures for a civil servant of the 14th rank are NT$51,480 and NT$39,440. Since one unit is two basic salaries, lower-ranking officials are sacrificed for the sake of high-ranking officials, who are in effect defrauding them to fatten themselves.

The 18 percent preferential savings interest rate was originally intended to give those who choose to receive their retirement pension as a lump sum a monthly dividend to serve as a retirement payment. Therefore, those who choose a monthly payment should not also enjoy the preferential savings interest rate. However, they do and this is unimaginably generous. Using the highest-ranking mid-level civil servant ranking as an example, adding the interest from the NT$1,643,940 quota on which retired civil servants enjoy the 18 percent preferential savings rate, they get an additional NT$24,659, tax free, on top of their monthly pension payment of NT$76,205, thus receiving a total of NT$100,864. That’s a substitution rate of 144 percent.

The top officials setting up the new system did so to their own fraudulent purposes and a further reform in 2006 is also stirring up problems. At the time, the substitution rate had to be lowered and public servants therefore used a 12th of their basic salary, supplementary pay and year-end bonus together with an additional managerial supplement when calculating the substitution rate, thus seemingly lowering it.

This is how the new system is used to deceive lower-ranking officials and higher-ranking officials alike. It is a vicious piece of legislation and it is not very surprising that the Civil Servant insurance fund is about to go bankrupt.

Lin Cho-shui is a former Democratic Progressive Party legislator.

Translated by Perry Svensson