Tue, Feb 01, 2011 - Page 1 News List

Ministry of Civil Service re-tweaks 18% rate proposal

By Shih Hsiu-chuan  /  Staff reporter

The Ministry of Civil Service yesterday presented a proposal that it said could save the nation NT$3.4 billion (US$116 million) in its latest move to reform a controversial preferential savings plan for some civil servants.

Minister of Civil Service Chang Che-chen (張哲琛) told a press conference that the proposal would apply to 63,877 civil servants or retired civil servants whose pension accrued during years of service prior to June 30, 1995.

The government came under fire early last month after some retired civil servants began depositing larger sums of money into their 18 percent preferential rate accounts in the wake of regulations pushed by the Chinese Nationalist Party (KMT) caucus in July.

The ministry had tried to quell anger over what critics described as an “excessive income replacement ratio” by capping the amount of money that civil servants or retirees could put into their preferential savings accounts at NT$2 million — but that move drew even more criticism.

Prior to the former Democratic Progressive Party administration’s reform of the system in 2006, post-retirement income — as compared with the civil servants’ final salary before retiring — could reach 115 percent of their final salary.

The DPP’s proposal capped the income replacement ratio at 95 percent by restricting the amount of money civil servants could deposit in preferential savings accounts and keeping the 18 percent interest rate.

The Chinese Nationalist Party (KMT) was sharply critical of the move, which it said favored senior officials while cutting the benefits of those with lower salaries and long years of service.

Chang said the ministry’s latest proposal would rectify the flaw in the DPP scheme.

“The new proposal will lead to larger reductions in interest payments for senior officials than for officials with lower salaries and lower positions,” Chang said.

Chang said the proposal would lead to an increase in interest payments of NT$9,372 annually for a fifth-grade civil servant, while the annual interest payments for an official who retired as a minister — which is above the top rank of the 14-tier civil service — would be reduced by NT$20,000.

The new plan would see the income replacement rate fall between 80 percent and 90 percent, depending on rank and years of service, the ministry said.

At present, more than 400,000 retirees use preferential savings accounts — about 190,000 former military personnel, 150,000 former teachers and 60,000 former bureaucrats or officials.

Among the 63,877 civil servants who would be affected by the proposal, 9,044 would see their interest payments cut, 38,424 would be paid more, while the benefits for 16,419 would be unchanged.

Since the government must make up the difference between banks’ normal interest rates on time deposits and the 18 percent preferential rate, it is estimated that the government has to pay NT$70 billion annually to sustain the program.

Most banks offer only slightly more than 1 percent for time deposits.

After the adoption of the new proposal, the 18 percent rate would exist in name only, Chang said, adding that the interest rate for retirees would drop to between 5 percent and 14 percent.

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