Critical pension reforms demand spirit of sacrifice
The China Post news staffWith national attention transfixed on next week's announcement on labor insurance reform, it is critical to lay out some markers on what to expect, as well as call for some reasonable decisions in the blueprint. The coming package of reform plans to be laid out by the Cabinet is a comprehensive plan to adjust the pensions of public sector employees, in particular the 18-percent preferential interest rate for public servants. Here, all parties involved should keep a basic spirit of intergenerational justice in mind and be prepared to accept cuts to established benefits.
January 26, 2013, 12:02 am TWN
Ultimately, the survival of any insurance system depends on its stability as a guarantor of financial safety for its participants, or else the system is little more than a Ponzi scheme bringing disaster on an unfortunate group of people at an uncertain point in time, after previous participants have exhausted the pool of hard-earned savings. Retirees' pension systems in Taiwan consist of military insurance, public servants' insurance, labor insurance and national insurance, among others, for those not covered in the previous groups. Of the systems, labor insurance is the largest, affecting approximately 9 million people.
Perhaps top among the concerns is the income replacement rate of monthly stipends that a retiree becomes eligible for. This rate means the percentage of original working income.
Right now, the labor insurance fee is currently 8.5 percent of monthly wage (scheduled to rise gradually to 12 percent by 2026). Of the fee, the government contributes 10 percent, the worker 20 percent, and the employer 70 percent.
One of the proposals being reported by media is changing this key variable in the calculation for labor insurance retirees' monthly stipends. Currently the stipends are calculated based on the average of a pensioner's highest five years' income. On Jan. 23, a UEN report said that the most probable adjustment would be taking the highest 15 to 20 years of income value, a change that will lower the average.