After half a year of planning, the Executive Yuan today approved amendments to laws relating to the national labor insurance system and the special systems for public schoolteachers and military personnel. The revisions will be sent to the Legislature for deliberation.
Over the past decades, the rapid aging of Taiwan's population coupled with insufficient premium payments have put immense financial strain on the nation's pension systems, putting the funds at risk of insolvency within the next 10 to 15 years. Although this crisis is not imminent, failure to address the problems now will create greater disorder later and even tear at the fabric of society.
To initiate reform, the Executive Yuan established a special task force last November to work with the Examination Yuan in designing new pension schemes that are fiscally sound, socially fair, inclusive of all generations, and pragmatic and stable. Reform discussions focused on five major factors: income replacement rates, premium rates, benefit eligibility, fund efficacy and government responsibility. The task force also gathered public input by holding 246 forums that drew 31,000 people, and mapped out the amendments accordingly.
The proposed amendments are summarized below:
1. Labor insurance fund
a. Government responsibility:
The government will bear ultimate responsibility for payments made from the national labor insurance fund. It will allocate money to the fund annually, contributing at least NT$20 billion (US$667 million) in the first year to ensure workers receive their pensions.
b. Average monthly insurance salary:
The pension benefit is calculated by multiplying the average monthly insurance salary, the number of years of coverage, and a payment rate. Today's amendment proposes basing the average monthly insurance salary on the worker's highest 144 months of income, rather than the highest 60 months currently.
c. Payment rate:
For workers with an average monthly insurance salary of NT$30,000 (US$1,000) or less, the payment rate will remain unchanged at 1.55 percent. For higher salaries, a lower payment rate of 1.3 percent will apply to amounts exceeding the NT$30,000 threshold. This is expected to reduce monthly pension payouts by 5.11 percent (about NT$1,000) at most, or by 2 to 3 percent (about NT$500) on average.
d. Premium rate:
The premium rate will be increased by 0.5 percentage point every year until it reaches the current ceiling of 12 percent in 2021. However, if it is deemed that the pension fund will not be able to meet its payout obligations for another 20 years, the premium rate will continue to be raised by 0.5 percentage point annually until it reaches 18.5 percent (which excludes the employment insurance premium rate of 1 percent).
e. Fund investment return:
The labor insurance fund will use steady investments to seek returns of 4 percent or higher.
2. Public schoolteachers pension system
a. Years eligibility requirement:
Teachers must meet the "rule of 90" (worked at least 30 years, and reached 60 years of age) to be eligible for retirement benefits. However, teachers and principals from kindergarten through senior high school may qualify under the "rule of 85" (worked at least 30 years, and reached 55 years of age).
b. Income replacement rate:
In principle, the income replacement rate cap will be lowered from 95 percent of double the base salary to 80 percent of pre-retirement salary. Specifically, the pension amount will now be based on the average monthly salary over the last 15 years of service, the pension pay base will be reduced to 1.6 or 1.7 times the average salary, and the preferential interest rate on savings will also be lowered from the current 18 percent.
c. Premium contributions:
The premium rate will be increased to 18 percent from the current 12 percent. The government and the employee will contribute to 60 and 40 percent, respectively, rather than the current 65 and 35 percent.
d. Consolation payments:
Consolation payments to dependents of deceased teachers will be lowered to one third of the original amount, and subject to restrictions on age and marital status. This payment shall not overlap with other same-type payments. In addition, seniority compensation payments will be abolished.
e. Retired teachers:
The pension pay base and preferential interest rate for retired teachers will be reduced in the same manner as for in-service teachers.
f. New employees:
The retirement system for new teachers will include of three layers of defined-benefit and defined-contribution plans, at proportions of 15, 40 and 20 percent.
3. Military personnel pension system
Premium contributions and preferential interest rates for military personnel will be adjusted in the same manner as for public schoolteachers described above. However, several measures specific to military retirees have also been adopted:
a. Calculation base for retirement payment:
Because military personnel have relatively shorter periods of service, their pension payments will be calculated based on the average salary of the last three years of the final rank the officer served at. If they served less than three years in that rank, then the calculation shall be based on the previous rank, to close the loophole where an officer retires soon after being promoted to a new rank.
b. Lump-sum pension payment:
For those not involved in criminal cases, but have accumulated penalties equating to C or above in performance evaluations or have garnered two demerits, and have been officially evaluated as not befitting a soldier in service, such military personnel shall receive only a lump-sum payment on retirement. This is to differentiate them from dishonorably discharged soldiers and to encourage military discipline.
c. Service period extension:
The maximum period of service for military personnel will be extended. In addition, those with professional and technological skills or serving in support roles—such as military doctors, military law personnel, accounting and finance personnel, special electronic reconnaissance personnel, aviation control personnel, administrative and military training instructors—after serving their full maximum years (age), a colonel may still serve until 56 years of age, a lieutenant colonel to 54, a lieutenant commander to 52 and lieutenant officers to 50.
d. Suspension of benefits for military retirees taking up public posts:
Pension payments and preferential interest rate on deposits shall be suspended when a military retiree takes up a public post or works at a state enterprise, regardless of whether the retiree is receiving annuity payments or chooses a lump-sum payment. If the salary at the public post is less than the pension payment, then the retiree shall be compensated.
These reforms to the various pension systems will realize the objectives of "sustainable operation, guaranteed payouts and fairness between generations." To achieve sustainable operation, payment levels will be modified to alleviate the financial burden, premium rates will be increased to reflect insurance cost, and fund investment returns will be raised to ensure financial viability. These reforms will provide sufficient cash flow of the nation's pension funds for 25 to 30 years.
As for guaranteeing payouts, it is the government's solemn duty to provide basic economic security for citizens in their old age, which is why the government is taking up ultimate responsibility for making payments under the labor insurance fund this time.
To ensure fairness to all generations, these reforms are intended to reduce fiscal pressures in the future, redistribute the burden among all generations, allow seniors to enjoy their golden years, and give younger people greater hope for the future.