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May 30, 2017

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New pension regulation allows workers to choose investments

TAIPEI, Taiwan -- An amendment was made to the Labor Pension Act allowing workers to withdraw part of their pensions on a monthly basis so that they can invest in financial products of their own choice.

Those who chose to do so may also enjoy tax benefits, however, they will have to shoulder any losses incurred, as the government will not guarantee any profits from this type of investment. Under the new proposal, workers are not allowed to pocket their profits until they reach 60 years old, unless financial products of their choice allow for advanced profit withdrawal.

The proposal has been submitted to the Executive Yuan for approval. There is a one-year buffer period, and the new rule will take effect in 2016 at the earliest.

The Financial Supervisory Commission (FSC) and the Ministry of Labor (MOL) will form a review committee to create various types of investment products, which workers can then purchase from financial institutions. Workers are advised to purchase investment products that best suit their risk profile.

The Current System

The MOL already has a mechanism that allows workers to withdraw funds and make deposits into their own investment accounts. The funds cannot be reverted into a government-managed fund.

Under the current system, the government takes charge of the management of the pension. Even if the investment suffers losses, the pension is still guaranteed a two-year CD interest rate.

The current system allows employers to allocate 6 percent of their employees' earnings into employees' pension accounts. Workers may also withdraw part of the funds on their own, but this practice is not very common. With the amendment, workers may choose their own investment targets, which the MOL hopes will motivate more people to withdraw funds on their own.

Self-withdrawal Dependent on Earning Ability

There are a total of 5.86 million workers enrolled in the pension fund. Roughly 344,000 of them have withdrawn funds on their own on a monthly basis. The number is relatively low, and the proportion is less than 6 percent of the total.

Furthermore, the data shows that it is mostly the high-income earners who make the choice of self-withdrawal. For workers earning NT$72,000 or more per month, about 30 percent withdraw funds.

For the group that earns between NT$45,000 and NT$72,000, the proportion is 12 percent. The proportion is 1.5 percent for the group earning NT$30,000 or less.

It shows that those earning less are under economic pressure, and therefore are less willing to make the withdrawal. For high-income earners, self-withdrawal serves to cut tax payments.

Citibank investment analysts recommend workers to invest for the long term, so that there will be sufficient money after retirement.

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