While negotiations on next year’s government budget are stalemated, the Chinese Nationalist Party (KMT) has proposed an amendment to suspend reform of the pension system for civil servants, school teachers and military personnel, which would benefit the party, but would be a blow to the government and the nation.
The KMT caucus said that the suspension of the pension reform is its top priority this legislative term, and the KMT convener of the legislature’s Judiciary and Organic Laws and Statutes Committee on Monday initiated a review of the draft amendment of the Act Governing Retirement, Severance and Bereavement Compensation for the Teaching and other Staff Members of Public Schools (公立學校教職員退休資遣撫卹條例), which aims to restore the controversially high payments of civil servants’ pensions.
The old pension scheme had long been criticized for allowing civil servants to “contribute little, retire early and receive generous benefits,” and created a bankruptcy crisis. In 2017, the Democratic Progressive Party government, under then-president Tsai Ing-wen (蔡英文), launched pension reforms — which her predecessor, Ma Ying-jeou (馬英九) of the KMT, had also called for during his term — abolishing the preferential 18 percent interest rate on civil servants’ savings accounts and lowering the income replacement ratio. The retirement payments were gradually lowered to a maximum of 62.5 percent from the original 80 percent or even more than 100 percent in some cases.
The KMT’s proposal to reinstate the income replacement ratio to 80 percent is widely seen as a political move to court the votes of retired civil servants. The proposal has triggered debates in the legislature and concern over the fund’s financial stability. It has also created social conflict and division.
The Ministry of Education and the Ministry of Civil Service have said that halting the pension reform would raise payments, causing the fund to run out sooner and create a financial imbalance. The reforms had extended the funds’ projected solvency from 2030-2031 to 2045-2049, but with the KMT’s proposed changes, the funds could be exhausted by 2040.
The deficit in the pension fund would have to be covered by taxpayers. The KMT’s proposal is unfair to current civil servants and the younger generation, who would pay more to a fund that might be bankrupt when they retire. It would widen social inequity, as retired civil servants and public school teachers would receive higher pension benefits, funded by the government and taxpayers, than the more than 10 million private sector employees whose pensions’ income replacement ratios are lower than 70 percent.
The KMT has said that resuming higher pension benefits for retired civil servants would bring them in line with inflation, but there is already a cost-of-living regulation in place that adjusts pensions with price changes and raises them in accordance with the salary increase of incumbent personnel. That has been practiced three times, as the government over the past five years has given a cumulative 11 percent raise to the civil servants.
The amendment could also help the government prevent a possible collapse of the national civil service system, the KMT said. However, the truth is that the anti-reform legislation would make the nation’s finances, currently-serving civil servants and younger generations victims, creating social injustice and reversing the country’s development.
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