The proposed reform to phase out the 18 percent preferential interest rate enjoyed by retired civil servants, military personnel and public school teachers is expected to save the nation at least NT$27 billion (US$$914.76 million) a year by 2020, officials at the Ministry of Civil Services said yesterday.
The Ministry of National Defense added that the planned reform would also save the ministry NT$6 billion a year.
Minister of Civil Service Chang Che-shen (張哲琛) and Department of Retirement and Survivor Relief Director Lu Ming-tai (呂明泰) unveiled the reforms to the civil servants’ retirement system at a press conference.
Similar reforms applying to retired military personnel and public school teachers were announced by the Cabinet.
Under the plans, the 18 percent preferential savings rate would be cut to 12 percent in 2016, with a decrease of 1 percentage point every year afterward until 2020, when the rate is to be replaced with a floating interest rate.
The floating interest rate is to be calculated by adding 7 percent to two-year certificate of deposit (CD) rates at the Bank of Taiwan, with a ceiling of 9 percent.
An estimated 420,900 people currently benefit from the preferential savings rate, which was introduced in 1960.
Among them, 190,000 are retired military personnel, 120,000 retired civil servants and 110,000 retired teachers.
According to government statistics, the cut in preferential rates will affect about 227,000 civil servants, among whom 81,208 are retired civil servants and 146,540 are active civil servants, in addition to about 220,000 military personnel, including 31,000 retired military officials and 190,000 still in military service.
Under the plan, retired government employees who took out their pensions in lump sums before the new retirement system for civil servants was enacted on July 1, 1995, and the respective new retirement systems for the military personnel and teachers were established in 1997, will still enjoy the 18 percent preferential interest rate because they had lower incomes in the earlier years of their careers.
Meanwhile, the ministry proposed adopting a “rule of 90” system in 2016, in which a civil servant can only be eligible for monthly pension payments if their age and years in service add up to 90.
Currently, civil servants can retire if their age and years in service add up to 85.
However, police, physicians and nurses, and teachers at schools below the level of junior high, as well government employees in related sectors, are exempted from the change.
An income replacement cap of less than 80 percent is to be imposed on civil servants, military personnel and public school teachers, who can receive up to about 90 percent of their pre-retirement income under the current pension system.
According to the ministry, a senior official who currently earns NT$81,550 a month, including a salary of NT$47,080, professional supplement of NT$25,770 and other supplements of NT$8,700, and who worked in the government for seven years before the new retirement system was enacted in 1995, receives NT$62,369 a month if he applies for retirement, in addition to a NT$1.52 million lump sum insurance pension.
If the official applies for retirement in 2023, he would receive NT$55,589 per month, plus a NT$1.52 million lump sum insurance pension.
If the official retires after the reforms take effect in 2026, his monthly retirement pension would be reduced to NT$51,473 and he would not be eligible to claim the NT$1.52 million lump sum insurance pension.