The three presidential candidates have stated their positions on pension reform, but they are focusing on the wrong issues, such as the fiscal shortfall and hidden debt.
By ignoring the basic premise of security in old age and neglecting the three problems related to the existence of occupation-related pensions — inequality, inadequate protection and the lack of sufficient premiums — their suggested reforms fail to go beyond the false reform equation of “pay more, take out less, retire later and raise return rates,” as proposed by the administration of President Ma Ying-jeou (馬英九). This will only lead pension reforms down a dead-end street and kill any potential for overall system reform.
First, addressing the hidden debt, or the pension system debt, is the wrong way to approach the problem. State employees — military personnel, civil servants and public-school teachers — insurance, retirement pensions, labor insurance and the national pension insurance plans all use a pay-as-you-go formula that first determines the amount that the retirees will receive. It then sets the premium required to meet the expenditure. According to this system, pensions are not derived from past premium payments, but from the premiums paid by people currently paying into the program. That is what is meant by the pay-as-you-go system. This means that the amount for future payments does not need to be completely set aside now.
Hidden debt, on the other hand, refers to current insurance deposits being insufficient for future use. This is different from the pay-as-you-go system.
If the presidential candidates cannot differentiate between these systems, how are they going to be able to reform them?
Considering the NT$18 trillion (US$541.19 billion) in hidden debt, cutting the pensions of state employees aside, even a sharp cut in the labor retirement pension would be of no avail: Even if payments were cut and retirement age was pushed forward to pre-empt the problem of inadequate funds, the question of whether that would be sufficient to provide old-age guarantees for the whole nation still stands.
All pension systems base their calculations on earned salaries. The challenges facing such systems are twofold. First, the problem with pension payments is not that payments are too high, but rather that they are unevenly distributed and that they provide insufficient guarantees. Second, due to the long-term slump in salaries and the declining birthrate, in the future, premiums will be insufficient to cover payments.
State employees’ pensions are higher than those of the general working population, but it is often overlooked that the general working population have far better protection than people who remain unemployed for a long term.
There is also the issue of wage differences within the same profession. Those in a higher wage bracket receive higher pensions, while those in a lower bracket receive less. This leads to differences in pensions for different occupations as well as for different wage brackets, so there is no effect on income redistribution.
Pensions that low-paid or long-term unemployed people would receive are likely to be significantly lower than what they need to survive. Thus, the whole point of pensions, which states that there should be more protection for low-income people, is lost.
As the current pension system is the only setup that provides security for retirees, premiums will inevitably be raised to cope with the problem of low wages and the low birth rate to ensure that pensions do not fall. This will increase the burden on the working population.
Therefore, to reform the pension system, the problems of inequality, inadequate protection and insufficient premiums must be dealt with. Each candidate should think of how to structure a tax-supported pension system that will use income redistribution to provide guarantees for everyone, regardless of profession and income.
On top of basic pension, there should be a work-related pension system contributed to by employers and employees. This system should reduce the premium differences between different professions to lessen the inequalities.
Unfortunately, none of the presidential candidates have addressed the problems inherent in the pension system, or put forward a comprehensive blueprint for overall pension reform; instead they continue to emphasize the false issue of bankruptcy, continuing the Ma administration’s labor insurance crunch mirage.
If this continues, could the public really feel secure about their retirement even if a new regime is installed next year?
Lu Chyi-horng is a consultant and economics researcher at the Taoyuan County Industrial General Union.
Translated by Clare Lear
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