Public Service Pension Fund numbers just don't add up
The China Post news staffBy now, it is not news that the government's pension systems are in serious trouble. Interestingly enough, not many seem to have caught up on the apparent discrepancy between what officials say the problem is and what the figures point toward.
January 12, 2013, 12:00 am TWN
Before we get down to the nitty-gritty, we need a holistic view of the issue, in order to understand the phenomenon and the reasons why people might have overlooked it.
Take military pensions as an example.
Like the average laborer, a person employed by the military pays a certain amount of his or her salary toward a pension fund. Take an officer's basic salary and multiply it by two; 12 percent of that is handed over to the Public Service Pension Fund. Of that 12 percent, 65 percent is paid for by the state, while the remainder is taken out of the individual's pay. What is important to remember here is the “2 percent.”
The Public Service Pension Fund covers three different types of people: civil servants, education workers and military personnel.
Pension payments of civil servants and education workers are calculated according to more or less the same formula of military personnel.
By 2011, it became widely known by the public that an expenditure-revenue asymmetry had developed — a worrying asymmetry. For every NT$100 the fund received from military personnel, it paid out NT$107 to military retirees. At the time, the expenditure-revenue ratios for civil servants and education workers pensions stood at 61 percent and 75 percent, respectively, meaning that the fund was still receiving more than it was paying out within those two demographics.
By 2012, the expenditure-revenue ratio for military personnel rose to 117 percent.
Examination Yuan President Kuan Chung came out and said that military personnel should be removed from the Public Service Pension Fund; otherwise, they will eventually drag the entire system down.
If you look at the aforementioned expenditure-revenue ratio, Kuan seems to have a point here. Within the space of one year, it had grown by 10 percentage points. Furthermore, the ratio is likely to rise even more drastically in the future.
The military is bound to sink the ship.