New pension reforms offer hope

By Lin Cho-shui 林濁水  / 

Wed, Feb 20, 2013 - Page 8

It looks as if a solution has been found to the pension issue — and in particular the pension system for public servants — that threatened to send Taiwan the way of Greece. If this turns out to be true, this reform will be of comparable significance to the first direct legislative and presidential elections and the downgrading of the nation’s provincial government to a nominal institution in the 1990s.

Despite the lack of agreement, the lingering concerns and the frayed tempers, there is much to be positive about.

On Jan. 30, the Chinese Nationalist Party (KMT) and the Democratic Progressive Party (DPP) both announced their pension reform proposals. Policy-wise, this is the most important political penalty shoot-out in a decade or so of clashes between the two sides.

Without doubt, the DPP’s proposal is more detailed, comprehensive and ideal in terms of age of eligibility, risk sharing, portability, clarity, income replacement rate and the handling of the 18 percent preferential interest rate on savings issue.

The KMT’s offering has a relatively cobbled-together feel and caters to several vested and not entirely legal interests.

Although Examination Yuan President John Kuan’s (關中) proposal for retired public workers — military personnel, public school teachers and civil servants — is more generous than one might find in a normalized country, the reduction of the income replacement rate from a maximum of 140 percent to 80 percent is more significant than in the 1992 reforms or in former president Chen Shui-bian’s (陳水扁) 2005 reform, and this is to be applauded.

The KMT is evidently aware of the failings of its own proposal, as the party emphasized that the system would be subject to review every five years. It thought this would solve the problem, but the DPP said that changes in the pension system should address a whole generation, and that raising the possibility of introducing changes every five years would certainly lead to headaches and was far from ideal.

The strangest thing is that for all the noise it made about this issue in the past, nobody in the DPP seems to have brought up any of these more advanced recommendations before –– Why the preoccupation with the 18 percent preferential rate when this was just one of many evils with the KMT’s chaotic and self-serving 1992 proposal?

Even more serious was the different methods for calculating multiplication factors for the basic salary, and the way in which public sector workers were strangely divided up into different categories for what provisions were to be made for them. Some were ridiculously generous, giving some monthly pension payments of more than NT$200,000 when the 18 percent interest rate on savings was factored in, resulting in an income replacement rate of 140 percent, while others were left by the wayside and given a more reasonable pension.

The DPP glossed this over, preferring to criticize the 18 percent rate, whether it made sense to or not, simply because it was something “the public could understand” and was the best way to maximize its political point-scoring. The problem was this created resistance to reform and allowed the culprits to get away with it, and for the unreasonable measures to remain in place.

When Chen’s 2005 proposals met with a backlash, whenever Kuan mentioned reform the DPP on the one hand responded by concentrating solely on the 18 percent rate and on the other hand by refusing to offer anything else of substance in terms of reform. Instead, it smiled happily as pan-blue supporters turned on Kuan, one of their own, and refrained from voting, happy that it was not the DPP itself that was stirring up the hornets’ nest.

After academics and other well-intentioned people had pointed out several ways in which the retirement system could be rigged, Kuan became the first government official to demand reforms. President Ma Ying-jeou (馬英九) followed and more than 100 meetings to discuss the issue were arranged, as if a mass movement was being organized.

It was the DPP that started the demands for a reliable national pension system. Examples are the subsidies for the elderly and for old farmers in 1990, attempts to reform the 18 percent preferential interest rate system in 2004 and the passage of the National Pension Act (國民年金法) in 2007.

The DPP did a good job of it, but the KMT kept blocking the proposals. Unexpectedly, after all the attempts at reform seemed to have been quelled, Kuan managed to mobilize the public in renewed, even more intense demands for reform.

The DPP also initiated the 1990s’ democratic reforms of the constitutional system, while the KMT blocked them. Today these reforms are being revived by Kuan, who belongs to the KMT’s deep-blue faction, the biggest beneficiaries of pension reform. This is regrettable and probably the main reason the DPP does not manage to take the lead.

While the party has offered every possible response, the public does not see a future vision. If Ma is lucky enough to encounter other similar reform issues, the DPP may still have little chance of doing well in the 2016 elections, which is now the party’s all-consuming goal.

It now seems that strong public support has helped the government over the most difficult stumbling block to pension reform: the civil servants themselves. We can only hope that the final proposal will not be a further watered-down version of Kuan’s proposal, but one that is closer to the DPP’s proposal.

Regardless of what happens, now there is new hope.

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

Translated by Paul Cooper and Perry Svensson