The government has announced its pension reform plan and the Democratic Progressive Party (DPP) has also released its version. A “labor version” is also being drawn up and released by workers’ rights groups.
Everyone is equal before the law and the same principle should apply to pension systems for workers in different professions. For example, everyone who has worked for 40 years should enjoy an income replacement ratio of 70 percent, including the 18 percent preferential interest rate on pension savings accounts that retired military personnel, civil servants and public school teachers enjoy.
This is equivalent to a monthly pension payment of 1.75 percent of their monthly salary for each year worked. Furthermore, apart from certain cases, the qualifying age should be gradually increased to 65.
At the same time, to be able to accurately calculate and compare income replacement ratios, the insurance and retirement annuity systems for military personnel, civil servants and public school teachers should be vertically integrated. The same should be done to the labor insurance and labor pension systems.
This would mean that the increase in the labor insurance contribution rate for workers with a fixed employer could be accommodated by shifting the progressive contribution rate for the new labor pension system, which starts at 6 percent, to the labor insurance system.
If the government shouldered 10 percent of the 6 percent contribution, it would increase to 6.67 percent and if it paid 20 percent, the contribution would increase to 7.5 percent. This would mean that the labor insurance premium could be increased from a mandatory 12 percent to 18.67 percent or even 19.5 percent, immediately covering the premium without adding to the burden of employees.
A look at the government’s pension annuity system for military personnel, civil servants and public school teachers shows that the premium would never exceed 18 percent for those younger than 65 who have worked fewer than 40 years and who have an income replacement ratio of 80 percent.
There is no reason why we cannot have premiums of 18.67 percent or 19.5 percent for workers of 65 or older with an income replacement ratio of 70 percent for those who have worked for 40 years.
This is why workers’ rights groups want the law regulating pensions for military personnel, civil servants and public school teachers to be amended first, so that the regulations for other salaried workers can be adjusted in line with those changes.
One problem with the individual accounts system used in the new labor pension system is that the resulting income replacement ratio is unreliable because nobody can predict how much the currency will have depreciated after 30 or 40 years.
A second problem is that it is impossible to predict irregular high-risk investments, such as stock investments by the pension fund manager, while low-risk investment such as government bonds yield low profits.
In particular, when it comes to high-risk investments involving large sums of money, it is impossible to guarantee that the fund manager will not communicate the details with other individuals.
Therefore, we should use this opportunity to integrate the premiums for the new labor pension system into the labor insurance system. By doing so, employees would not experience an increase in rates and they would also benefit from the government taking on an additional 10 percent of the burden. If we looked at the system as a social insurance, the government could make up for any remaining imbalances.
Such a system would be much easier to manage and would guarantee workers greater economic security after their retirement.
Bair Jeng-shiann is director of the Taiwan Labor Front.
Translated by Drew Cameron