New labor pension system worries employers

The new labor pension system includes the major advantage that each employee has an individual retirement account in which accumulated pension funds and accumulated working years are portable with the employee, i.e. employees are able to accumulate their pension reserves and working years no matter how may times they change their jobs. Currently, an employee usually has to restart accumulating his or her working years and pension funds when moving to a new job.

“The new labor pension system is beneficial to all the eight million workers in Taiwan,” CLA Chairwoman Chen Chiu said when the bill was passed by the Legislative Yuan on Friday. The bill will become effective from July 2005.

However, it is no free lunch. Hou Chen-hsiung, chairman of the Chinese National Federation of Industries, estimates that it will cost NT$98 billion for all employers in Taiwan per year. “If the employees are required to share the cost at certain companies, it is not good news for workers either,” he said.

Under the traditional labor pension system, the monthly pension funds contributed by a company for its employees should not be less than 2 percent of the total monthly salaries of its employees. An employee can apply for retirement after he or she has worked at a company for 25 years, or the employee has turned 55 years of age and has worked at a company for 15 years. At retirement, an employee can get a pension payment in a lump sum, roughly equivalent to 40 times the employee’s average salary over the last 6 months before retirement.

Under the new labor pension system, an employee can’t apply for the pension funds until his or her age has reached 60. The percentage of reserved pension funds for employees will be raised to 6 percent under the new system, and as the bill stipulates, the funds are removed from the monthly salary of each employee. The monthly pension payment to each employee after he or she retires is roughly 54.3 percent of the employee’s current monthly salary. For instance, an employee with a current monthly salary of NT$50,000 will be able to get a monthly pension payment of NT$27,804 or so.

The compulsory deduction of 6 percent from employees’ monthly salaries for their pension funds in the future may lead to an apparent decrease in the current monthly salaries of employees. Certain enterprises may raise the salaries of their employees to compensate for their current loss, but not every company has sufficient funds to do so. The CLA estimates that the new labor pension system will lead to an increase of about 3 percent in monthly salaries on average.

Under the new pension system, the total annual pension funds contributed by enterprises in Taiwan should increase to NT$200 billion, said Hou of the Chinese National Federation of Industries. “In other words, around NT$200 billion will become non-working capital every year,” he added.

It could have a serious impact on those companies without a sound financial structure, especially small and medium-sized enterprises (SME). Hou predicted that most SMEs may cut staff or employees’ salaries to cope with the higher labor pension costs.

Hou said that the new pension system would eventually hurt the rights of employees even though it is claimed by the government to benefit both enterprises and employees. The worst possibility is that companies may prefer hiring contract workers to reduce the pension costs of their employees.

Regarding the impact of the new pension system on big companies, the CLA provides an annuity alternative to companies with a working staff of more than 200 people. A company opting for the annuity alternative will buy the annuity for employees with the funds deducted from employees’ salaries. Companies can decide the amount of the annuity purchased and the percentage of the employees’ salaries to be used for purchasing the annuity themselves.

According to the CLA, there are currently 2,385 companies with a working staff of over 200 people in Taiwan and their combined number of employees total 737,873.

Although the new pension act has just passed the Legislative Yuan on Friday, several insurance companies have been active in striving for the new business opportunities in the annuity market, eyeing the 2,385 companies as their potential clients.

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