Mon, Jan 28, 2013 - Page 1 News List

Civil servant pensions set for change

MONEY MATTERS:Amid the financial difficulties of recent years, there have been calls by the public for the reform of pensions for civil servants, deemed by many to be unfair

By Jake Chung  /  Staff writer, with CNA

Amendments to the pension system for civil servants are set to introduce a floating interest mechanism with a maximum interest rate of 9 percent, halving the 18 percent preferential rate previously enjoyed by retired civil servants, an Examination Yuan official said yesterday following a Cabinet meeting on Saturday.

According to the Chinese-language United Evening News, an Examination Yuan official said on condition of anonymity that a tentative agreement had been reached whereby the 18 percent preferential rate for retired civil servants, public school teachers and military personnel would be replaced with a floating interest rate to be calculated by adding a certain figure to the two-year certificate of deposit (CD) rates at the Bank of Taiwan.

The 18 percent preferential rates, formally known as the Preferential Saving Rates for Retirement Pension of Military Officials, Civil Servants, and Educators (軍公教退休優惠存款), were introduced in 1960, a period when the average income for the three professions was lower than for most other careers.

Amid the financial difficulties of recent years, there have been numerous calls by the public for reform of the system, which some consider unfair.

Changes were made to the preferential interest rates in 2006 and 2010, placing a ceiling of NT$2 million (US$68,450) for lump sum deposits utilizing preferential savings interest and limiting monthly interest rates to no more than NT$30,000, with lower-ranking civil servants only getting NT$10,000 per month from preferential savings interest, the Ministry of Civil Service (MCS) said.

According to statistics from the ministry, about 420,900 people benefit from the preferential savings rate, of whom 190,000 are retired military personnel, 120,000 retired civil servants and 110,000 retired educators.

Most of the retirees make NT$30,000 per month from the saving rates, but individuals who were in more senior positions when they retired, and had a pension lump sum exceeding NT$3.3 million, could make more than NT$50,000 a month from savings, the ministry said.

Sources that attended the meeting between the Presidential Office and the Executive and Examination Yuans on Saturday said that a tacit agreement had been reached to propose reforming pensions to a “three-pillar system” and implementing the “rule of 90,” adding that the latter may need to set an Income Replacement Rate (IRR) of lower than 80 to protect employees in certain sectors.

The ministry said the three pillars system refers to the division of pension payouts to the public sector.

The first pillar of the proposed three-pillar pension system guarantees retirees basic income after they stop working and would be distributed under the National Pension Program or other government insurance schemes.

The second pillar would be the provision of flat employment-related benefits, the ministry said. It added that the third pillar would be an assortment of government-offered investment packages, which would be entirely voluntary.

However, to prevent retirees from manipulating third pillar packages as if they were stocks, the ministry said that it was mulling limiting changes in investments in the third pillar to four per year.

The rule of 90 would make civil servants, military personnel and public-school teachers eligible for retirement benefits if their age and years of service add up to 90.

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