The government’s plan to reform the cash-strapped Labor Pension Fund would see the ceiling on pension premiums lifted by 7.5 percent by 2036, payments decrease by up to 20 percent and use an average of NT$20 billion (US$677.12 million) in government funds annually to fill the credit gap in the pension scheme.
After President Ma Ying-jeou (馬英九) detailed the policy guidelines for his administration’s pension reform plans yesterday morning, Vice Premier Jiang Yi-hua (江宜樺), who heads a Cabinet task force on the issue, outlined two versions of fund reform proposals during a press conference at the Executive Yuan.
The difference between the two proposals is in their methods for calculating pension payments, but both would see monthly instalment payouts decrease by between NT$229 and NT$5,308 per month.
The current contribution rate is 8 percent and it is scheduled to rise by 0.5 percentage points every year to reach 9 percent in 2015 and then by 0.5 percentage points every two years afterward, bringing the rate to 12 percent in 2027.
Both proposals would keep the contribution rate the same until 2015, but then make the 0.5 percentage points increase annual instead of biannual, to take the rate to 19.5 percent by 2036.
As stipulated by the Labor Insurance Act (勞工保險條例), the size of the pension payout to the insured is calculated based on their monthly insured salary, the number of years that they have contributed to the fund and a 1.55 percent payment rate.
The government suggested calculating the monthly pension based on the highest 180 months of salary on which premiums were paid, as opposed to the highest 60 months at present, and lowering the payment rate.
In one version, the payment rate would stay at 1.55 percent for an estimated seven years and six months, during which the pensioner would receive monthly instalments equivalent to their lump sum pension payment, and they would then get 70 percent of that amount for the rest of their lives.
In the other version, the 1.55 percent multiplier would be applied only to individuals whose insured salary was less than NT$30,000.
For people with insured salaries between NT$30,000 and NT$43,900 — the top labor insurance bracket — the multiplier would be cut to 1.3 percent, which would affect an estimated 4 million of the 9.81 million workers covered by the fund.
Based on the national life expectancy, the average person lives for 22 years after they retire. Using this figure, the government calculated that if the first reform proposal is adopted, an employee with an insured salary of NT$33,508 who retires at the age of 60 after contributing to the fund for 26 years would receive NT$2,884,488 in pension payments, compared with NT$3,565,056 under the current pension system. The individual would lose NT$680,568 in total, or NT$4,051 in monthly pension payments, the government’s data showed.
Jiang said that the Cabinet has not yet decided on which proposal to implement before it holds another round of deliberations to listen to opinions from all sectors of society.
Either way, costs for employers, who cover 70 percent of each employees’ insurance premium rates, would increase by an estimated NT$124.5 billion if the contribution rate is raised to 19.5 percent in 2036 as stipulated in the proposals, Council of Labor Affairs Minister Pan Shih-wei (潘世偉) said at the press conference.
Meanwhile, the government also proposed amending the Labor Insurance Act to require the government to bear “ultimate responsibility” for pension payments should the fund go bankrupt, to defuse public concern about pension security.
The Cabinet will deposit NT$20 billion into the fund in the first year after the pension system is reformed, Jiang said. While the amount could be adjusted every year according to the economic situation, the government will try to maintain a set average, he said.