Before becoming prime minister of Britain, Tony Blair visited Singapore in his capacity as head of the Labour Party. During that visit, Blair stated that Singapore's Central Provident Fund was a successful pension system worthy of emulation. Blair even lamented the many problems of Britain's own pension system. Surprisingly, a nation that had once been a British colony was now being considered by Britain as a possible model.
But after Blair took office and implemented his "Third Way" policies, pension reform not only strayed from the collectivist central fund model, but even moved in the direction of Individual Retirement Accounts (IRAs). Alternative schemes were needed to compensate the existing national insurance scheme, whose payment levels had been falling by the year.
From April of this year, the UK began a new kind of personal "stakeholder pension" system. In order to encourage the public to prepare for retirement, for every pound deposited, the government will contribute an additional ?0.28.
In the 1970s, the late Lee Kuo-ting (
The Labor Standards Law (
The next year, the Council for Economic Planning and Development proposed a blueprint for individual labor retirement accounts under the "Labor Pension Fund" (
In the "insurance with annuity" plan, finances are handled according to the principles of social insurance and thus have an effect of reallocation. The government still considers retirement guarantees as a fundamental concept.
On the other hand, the government-bond fund system tends to be decided according to how much individuals have paid into their accounts, with individuals being ultimately responsible for their pensions.
Under current plans, however, the government would be in charge of management in both cases -- the insurance fund and the government-bond fund. This leads to worries about government mismanagement causing losses that will eventually be shouldered by the entire populace. The four large government funds have already drawn criticism for their accumulated losses of tens of billions of NT dollars.
But government management isn't completely out of the question. In 1990, for example, management costs of Singapore's central fund were only 0.53 percent. In Malaysia, which also operates a government-bond fund system, the cost was 1.99 percent. But in Chile, where a fully privately-managed government-bond fund system is in operation, costs were 15.4 percent. In addition, in the private pension funds of the US and the UK, approximately 35 percent of the allocated retirement money is used to pay commissions and management fees. These differences are due to the fact that government management brings considerable economies of scale.
The advisory conference has finally proposed a recommendation to implement individual labor retirement accounts to help solve Taiwan's economic slowdown and the serious unemployment problem. The hope is to find a way out for the economy by means of relaxing the rigid regulation of labor.
Whether in the UK or in Taiwan, no matter how long implementation is delayed, the onslaught of globalization will soon force a showdown. Taiwan's capital outflow and rising unemployment rate shouldn't constantly be attributed to "China fever." These phenomena are symptoms of globalization.
The recommendations proposed by the advisory conference should not serve merely as guiding principles for policy. The people of Taiwan should be told and persuaded about where these policies will take the country.
The success or failure of a system is based on its foundation in society. No policy works universally. A good policy is one that can cause society to come together and form a common consensus. I hope that those in power will make the tough decisions that need to be made at this important policymaking crossroads and at the same time let the people know where their best hopes lie. Failure to make decisions or making decisions solely to settle momentary crises will lead to a loss of morale and public support.
Edward Wu is an assistant professor in the department of social welfare at National Chung Cheng University.
Translated by Ethan Harkness and Scudder Smith
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