Thu, Apr 21, 2016 page8

• Reforming pensions for public servants

  • By James Lin 林奇璋
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  By law, public servants — military personnel, public-school teachers and civil servants — should receive a monthly pension after they retire. However, in practice — perhaps out of convenience, perhaps because government officials want to enrich themselves — retirees are allowed to draw six months of pension in advance on a half-yearly basis, which is out of keeping with the intention of the law.

  In 2014, the Executive Yuan began paying monthly pensions, which could save the government NT$1 billion (US$31 million) in interest annually, but to cater to hardline Chinese Nationalist Party (KMT) supporters, then-premier Jiang Yi-huah (江宜樺) reversed the decision on the grounds that the monthly scheme would only save the government a limited amount of money.

  The Democratic Progressive Party (DPP) now holds a majority in the legislature and DPP legislators Lo Chih-cheng (羅致政) and Chiang Yung-chang (江永昌) have proposed amendments to Article 11 of the Civil Servants Retirement Act (公務人員退休法) and Article 11 of the Statute Governing the Retirement of School Faculty and Staff (學校教職員退休條例), both of which stipulate that retirees must apply for monthly pensions in advance and can only receive the payments the following month instead of drawing six months of pension payments at once.

  In addition to these proposals, here are some further suggestions:

  First, a temporary measure that incorporates the principle of actuarial equivalent should be introduced. Since pensions have long been issued on a half-yearly basis, it is difficult to ask retirees to draw pensions on a monthly basis. The government could emulate how other nations are going about this and, for example, give retirees the option of drawing pensions every month, every three months or every six months.

  The overriding principle is that of actuarial equivalent. For instance, if the legal monthly pension is NT$50,000, after taking the principle of actuarial equivalent into account, the three-month pension could be NT$49,000 per month and the half-yearly pension NT$48,000 per month. The differences between these numbers are the differences in interest generated from the different schemes and the repayment that arises should a retiree pass away.

  Second, the public servants’ pension scheme can be incorporated into overall pension reform. Since pension reform is one of the incoming administration’s five major plans to ensure social stability, the public servants’ “monthly” scheme should be included, as it is not the only thing that runs counter to fairness and justice.

  For example, retired public servants enjoy the 18 percent preferential interest rate on part of their savings, can work in another job while still collecting a pension and receiving holiday bonuses, and their spouses can receive half of the pension after the retiree dies.

  The last example is perhaps one reason young foreign women marry older veterans or public servants, as they can receive half of their husbands’ pension when they become widows.

  Although the law has been amended in recent years, this scheme is more akin to social welfare and defies the spirit of a professional pension.

  Since public servant pensions are a professional pension, they are different from the civil servant and military insurance and must conform to the spirit of the different systems, so that all systems and options are fair. This would make pension reform meaningful in terms of social resource distribution.

  James Lin is a fellow of the Society of Actuaries in the US.

  Translated by Ethan Zhan
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