Time for some honesty on pensions

By Lin Cho-shui 林濁水  / 

Sat, Apr 13, 2013 - Page 8

The Examination Yuan on Thursday proposed an amendment to the Civil Service Retirement Act (公務人員退休法) to the legislature. As the deadline for the amendment approached, civil servants were seen to be making greater efforts to maintain their inappropriate vested interests.

Due to electoral concerns, the Examination Yuan has made a number of compromises to attempt to appease both the public and civil servants.

However, despite its best efforts, the proposed reform measures may well prove a disappointment to many Taiwanese.

The Examination Yuan says that civil servants are not to be blamed for the pension system’s high replacement rate because it was not their decision, but rather the result of a systemic flaw.

Why, then, is the system flawed? The Examination Yuan says that it did take the aging population and the declining birthrate into consideration when the act was amended in 1992.

This is absurd. Aside from the aging population and a declining birthrate, how could Taiwan ignore that other countries were reducing replacement rates to 70 percent or less, and raise its rate to 140 percent?

Furthermore, could the Examination Yuan really have been unaware of the aging population and declining birthrate in 1992?

On the contrary. The Examination Yuan knew that a 70 percent replacement ratio was generally seen as a reasonable figure internationally. This was mentioned in the explanation to the 1992 amendment, and the law unambiguously defines a formula using a maximum replacement ratio of 70 percent: 2 percentage points are added to the replacement ratio for each year worked, and this can be accumulated for 35 years, thus capping the replacement ratio at 70 percent. Clear and simple.

Let us move on to the aging population and the declining birthrate. During the economic recovery following World War II, the fiscal situation of many Western countries improved. Together with the baby boom, some countries entered a golden era for retirement pensions. However, by about 1980 their finances were affected by the economic downturn following on from the two oil crises of the 1970s.

In addition, birthrates continued to decline, average life expectancy increased significantly and the number of senior citizens began to rise drastically. As a result, governments reformed their retirement pension programs to reduce payments.

In the 1990s, they increased the scope of reform by adopting several measures, such as delaying the retirement age, reducing payment levels and increasing insurance premiums. As these countries have been promoting pension reform for almost 20 years, would not the Examination Yuan saying it does not know what Taiwan should do be tantamount to saying that its officials are idiots?

Of course they are not idiots. In 1993, the year after the amendment was passed, the number of senior citizens in Taiwan reached 7 percent of the overall population, making Taiwan an aging society. To prevent excessive population growth, Taiwan started to promote family planning in 1964, emphasizing that “two kids are just right, and one is not too few.” By the 1980s, the number of newborns was dropping steadily from more than 400,000 annually, by 10,000 to 20,000 babies a year.

Of course Examination Yuan officials were aware of this.

The Examination Yuan’s problem is not ignorance. Rather, it is its ruthlessness: By claiming that it would cut government expenditure, it obtained the public’s approval to initiate reforms, which in practice meant emptying the national coffers.

Examination Yuan officials at the time knew that the replacement ratio could not exceed 70 percent, and they were aware of the problem of the aging population and the declining birthrate.

They said that these were the reasons why they had to amend the retirement system to resolve the government’s massive financial burden, which was the result of the huge pension payments, and to be able to encourage government employees to retire at a later date to deal with the problem of an aging population.

In other words, the 70 percent cap was a promise made by the Examination Yuan to gain the public’s trust. Having won that trust, they promised to amend the law to protect the national treasury from bankruptcy.

Disregarding public trust, Examination Yuan officials, led by then-president Kung Te-cheng (孔德成) and then-civil service minister Chen Kuei-hua (陳桂華), played a dirty trick. While nominally adding a 70 percent cap to the replacement rate in the amended system, they allowed the new and the old system to overlap, doubled their basic salaries and offered benefits for early retirement along with other tricks that raised the replacement ratio of some officials to an absurd 140 percent.

The amendment was passed by members of the legislature elected in 1947, just before their retirement in 1992. The result of the amendment being passed was the exact opposite of the national goal that the officials at the Examination Yuan had promised, although it did meet their personal goals. Government expenditures exploded and their retirement age decreased sharply.

To stop procrastinating and cutting the replacement rate to 70 percent in one fell swoop is not a matter of the state going back on its pledge to protect the legitimate expectations of civil servants. On the contrary, it is a matter of fulfilling the public’s legitimate expectations by fulfilling a pledge.

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

Translated by Eddy Chang