Pension reform: creating a sustainable pension system

  • Date: 2017-03-03

I. Background

Taiwan’s pension system currently includes five kinds of social insurance (civil servants and teachers insurance, labor insurance, military insurance, national pension insurance and farmer’s health insurance), one type of social allowance (for elderly farmers), and seven retirement systems (for military personnel, civil servants, education personnel, private school faculty, laborers, political appointees, and judges and prosecutors).

Since each system is managed by a different government agency using its own methods and standards, different occupational groups receive diverse packages of pension payments and levels of protection. Concerns about the wide disparities in old-age security guarantees have prompted calls for a complete overhaul of Taiwan’s pension scheme. Meanwhile, these systems are also buckling under the strains of a rapidly aging population and declining birth rate, making the task of pension reform more pressing than ever.

Given the importance of pension reform to national fiscal sustainability and generational justice, the Office of the President announced the establishment of a Pension Reform Committee on May 30, 2016. On June 8, the same day that the list of committee members was released, the Executive Yuan established a pension reform office consisting of pension affairs experts from various government agencies to support the committee and handle the administrative aspects of the work.

The committee is made up of experts and academics from across party lines, active and retired military personnel, active and retired civil servants, active and retired teachers, laborers, farmers and fishermen, industrial representatives, women’s groups, young people and ordinary citizens, as well as representatives from the government agencies involved. As a democratic platform for stakeholders and the general public to voice their opinions, the committee is tasked with gathering information and feedback, conducting professional reviews, and drafting reform plans and options. A national affairs conference on pension reform will also be convened, so that the government can communicate with the people by taking a bottom-up, transparent and democratic approach, forge a consensus that includes all sectors of society, and come up with a practical plan to reform the existing pension system.

Convening its first meeting June 23 at the Presidential Office, the committee met a total of 20 times, with each session broadcast in its entirety online. The committee website also provides a wealth of information on the pension system and reform plans to keep the public updated on the latest developments and allow more people to participate in the process.

 

II. Pension reform objectives and principles

A. Objectives:

1. Ensure senior citizens do not lack the basic necessities of life.
2. Maintain the sustainability of the pension system.

B. Principles:

1. Design a system that considers both financial stability and what people can afford.
2. Provide for the financial security of disadvantaged people while maintaining reasonable benefits.
3. Narrow the gap between the retirement benefits of different occupations to maintain social cohesion and avoid division.
4. During the course of reform, abide by democratic principles and maintain transparency.

 

III. Progress of the Pension Reform Committee

A. Pension Reform Committee meetings

1. Twenty committee meetings were held from June 23 through November 10.

2. During the third through 10th meetings, the committee received briefings on the 13 different pension systems and related topics. In the 11th and 12th meetings, committee members discussed the objectives, principles and direction of pension reform.

3. Beginning with the 12th meeting, the committee discussed reform topics in the following order: structure of the pension system, financial resources, benefit payments, recipient eligibility, special groups, management of funds, and system conversion mechanisms. At the 20th meeting, specific recommendations from previous meetings were discussed and consolidated.

4. The responsible agencies then drafted preliminary reform plans based on the committee’s recommendations, performed actuarial calculations for different parameters, and assessed possible impacts from the changes. These assessments were compiled by the pension reform office to be used as reference for the regional forums and national conference.

B. National conference on pension reform

The Executive Yuan held a press conference on December 23 announcing the launch of regional forums and a national conference to gather input on pension reform from the broader public.

1. Regional forums

A series of regional forums leading up to the national conference were held in northern (Taipei), central (Taichung), southern (Kaohsiung) and eastern Taiwan (Taitung) on December 31, 2016 and January 7, 8 and 14 of 2017. Hosted by representatives from different sectors, the forums were attended by Pension Reform Committee members, scholars and experts, local occupational groups, young people, women’s groups, civic groups, political parties, public representatives and government officials.

2. National conference

(1) The Presidential Office held a press conference on January 19 announcing 2017 pension reform proposals to be discussed at the national conference. Its goals are to ensure that pension funds will remain solvent for at least one generation (25-30 years) and conduct periodic rolling reviews to keep the funds sustainable.

The medium and long-term plans will depend on the pension reform’s initial results. After the new system is implemented and operating smoothly, discussions will continue regarding raising pension payouts for more vulnerable groups such as unemployed women, farmers, private school teaching staff, and workers without regular employers. The government will also explore possibilities and directions for merging different pension schemes to create a system that both ensures financial security for older people and promotes social cohesion. A monitoring mechanism will be created to review the system every five or 10 years, addressing operating difficulties as well as social and demographic changes.

(2) The national conference took place on January 22, 2017 at the Presidential Office where President Tsai Ing-wen delivered opening and closing remarks and Vice President Chen Chien-jen served as convener. After deputy convener Lin Wan-yi delivered the national pension reform report, conference participants separated into groups to discuss three broad topics: benefit payments and recipient eligibility; fund management and financial resources; and pension system structure, special groups and system conversion mechanisms. Each group reported their conclusions at the end of discussions.

(3) Agencies responsible for the different pension systems will use recommendations from the national conference as the basis for drafting and promoting amendments to pension-related regulations.

 

IV. Amendments to pension laws

1. After the responsible agencies draft amendments for the pension systems under their purview, the Executive Yuan and Examination Yuan will complete the required administrative legal processes and forward the amendments to the Legislative Yuan for deliberation by late March to early April 2017.

2. The Ministry of Civil Service drafted amendments to a law governing civil servant retirement and compensation benefits and, after gathering feedback at a public hearing, has submitted the amendments for the Examination Yuan’s approval. The Ministry of Education and Ministry of Labor have also set about revising laws on pensions for education personnel and workers, and will submit their proposals in accordance with the required administrative legal processes to the Executive Yuan as quickly as possible.

3. The Judicial Yuan has reviewed regulations on retirement benefits for judges, while the Ministry of Finance has begun drafting changes to the 13 percent preferential interest rate on pensions provided to retirees of state-owned banks.

4. Reforms to the military personnel pension system will be handled separately. The Ministry of National Defense has submitted a draft version that is currently being reviewed by a special task force headed by Vice President Chen.

 

V. Conclusion

The government hopes this pension reform effort will guarantee basic economic security to every senior citizen in Taiwan. Combined with long-term care and national health insurance, Taiwan’s social welfare system will allow seniors to age in peace, alleviate the burden of care on younger generations, and ensure that today’s youth can receive the same level of government care when they reach their golden years. Maintaining a sustainable and stable pension system while conducting periodic rolling reviews will therefore benefit Taiwanese citizens of all generations and afford them financial security for as long as they live.