The Chinese Nationalist Party (KMT) has proposed a bill to suspend a phased-in reduction of the public pension income replacement ratio that was implemented in 2018. The amendment would not only reintroduce greater financial risks to the pension system, but would also increase the burden on the younger generation.
To alleviate a longstanding fiscal deficit problem — with a NT$300 billion (US$9.27 billion) deficit in 2014 rising to NT$600 billion in 2018 — that would lead to the bankruptcy of pension funds as early as 2030, affecting more than 450,000 retired public officials, teachers and military personnel, the Legislative Yuan in June 2017 passed a package of pension reforms proposed by the Democratic Progress Party (DPP) government under President Tsai Ing-wen (蔡英文).
The reforms included gradually decreasing the controversial high pension income replacement ratio to a low of 30 to 60 percent depending on years of service, as well as reducing an annual 18 percent preferential interest rate on pension payments to zero over a period of 30 months.
The legislation also raised the retirement eligibility age to 65 starting in 2026, eliminating options for civil servants and teachers to retire as early as 55, which had worsened a labor shortage driven by Taiwan’s low birthrate.
With these measures having taken effect from 2018, the current retirement funds can be kept operational for another 10 to 15 years, easing the payment burden on young workers. Official data show that the reforms have so far saved more than NT$267 billion in pension expenditure. From 2026, total savings from expenditure and government statutory payments made to the pension fund would rise to NT$300 billion per year, a significant contribution to the sustainability of pensions.
However, the KMT caucus recently proposed an amendment to the Act Governing Civil Servants’ Retirement, Discharge and Pensions (公務人員退休資遣撫卹法) to freeze the reduction in the pension income replacement ratio. The DPP proposed to veto the amendment and the legislature held a poll on Friday last week to vote on the DPP’s proposal. The results showed that the KMT prevailed with 48 votes against the DPP’s 47 votes, while all Taiwan People’s Party (TPP) legislators abstained from the vote.
However, a procedural flaw was found in that a KMT legislator had not signed in, but his name still appeared in the first voting round. Legislative Speaker Han Kuo-yu (韓國瑜) on Tuesday unveiled an investigation report that concluded the “rigged” voting was due to human error involving staff. The result was annulled and another vote is to be held soon.
Based on its slim majority in the legislature, the KMT very likely will win the revote. However, it should be noted that the KMT government during Ma Ying-jeou’s (馬英九) presidency from 2008-2016 had promised to reform the pension system, and proposed eliminating the preferential rate and cutting the pension income ratio. Yet Ma’s administration did not accomplish the needed reform.
Pension reform is undoubtedly a sensitive and difficult issue, but whoever is in power has to face the problem of worsening pension deficits. The reform should not be backtracked. Political parties that block pension reform without proposing a better solution should take responsibility.
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