Under the existing labor insurance law, the equivalent of between 6.5 percent and 11 percent of each worker's monthly salary is invested in the pension scheme. The burden of the premium is shared by the employer, the government and the employee, who contribute 70 percent, 20 percent and 10 percent, respectively. Retired workers receive their pension in one lump sum, and risk having their nest egg eroded by inflation and improper investment.
The revised labor insurance pension system, which will come into effect Jan. 1, 2009, will see monthly payments set at 7.5 percent. The premium may be increased to as much as 13 percent to cover the spending of the program.
In addition, retirees will be able to choose between two options: a lump sum on retirement or monthly benefits until death. Monthly payments will exceed the lump sum total after a period of eight years and one month, according to the Council of Labor Affairs.
The amount of the monthly allowance and the sum of the one-time payment varies depending on the monthly salary of the insured person. A retiree whose monthly salary was US$1,000 could expect to receive monthly payments after retirement of around US$400.
Moreover, the amended regulations will allow employees who lose the ability to work to apply for a monthly disability pension of a minimum of US$130. Previously, workers would receive lesser sums if their handicap was deemed to be of a less severe nature.
CLA Minister Wang Ju-hsuan said the new labor insurance system, which has been under development since 1993, represented the best protection the government could offer the nation's workers.
"Along with the national health insurance program, the new labor pension system represents a breakthrough in Taiwan's social welfare system," CLA Department of Labor Insurance Director Shih Fa-chi said.
However, critics have argued the new system is a "financial black hole" that could collapse in 19 years.
Responding to the criticism, Wang said the government would not hesitate to bail out the insurance system if it ran into fiscal problems. She added that people who contended the scheme would fail were basing their arguments on a worst-case scenario in which 80 percent of contributors opted to receive monthly pension payments and the fund's return on investment did not exceed 4 percent. "There are many variables that will decide the future of the labor pension fund--we need not be too pessimistic," said Wang.
Meanwhile, various civic groups forming the "Youth Anti-Debt Alliance" voiced their concern that they would be subsidizing a system from which they might not be able to benefit.
"The new plan means that the younger you are, the more you have to pay. However, there is no guarantee that an insured individual will be able to receive any payments after he or she retires," said Taiwan Young Democratic Union Chairman Vincent Chou.
Business organizations also questioned the wisdom of introducing the new system at a time of high inflation and economic volatility due to exorbitant fuel prices.
"How can employers pass on increases in their labor costs resulting from labor insurance premium hikes? We may have to install more automated machines and trim our workforces to maintain competitiveness," said Lin Pin-ping, president of the National Association of Small and Medium Enterprises.
Arguing that the nature of the new labor pension system showed that Taiwan was gradually becoming a welfare state, Lin said the government should not penalize local manufacturers in order to improve the lot of the island's wage earners.
Taiwan Labor Front, on the other hand, praised the adoption of the revised labor insurance pension system, arguing that it would provide a secure retirement for all. TLF secretary-general Son Yu-lian called on the government to explain the intricacies of the scheme so that the nation's 8.8 million workers can make informed decisions about their future.
The second package of amendments detailed changes to the national pension system that will take effect on Oct. 1 this year. Citizens between the ages of 25 and 65 who do not participate in the labor insurance pension system or any other retirement schemes--such as those set up for members of the military, civil servants, teachers or farmers--will be required to contribute to the national pension system. The scheme is intended to provide a safety net for people such as housewives, senior citizens and individuals without a fixed employer.
Participants in the national pension system will receive an annuity in the form of monthly payments after they reach the age of 65. To be eligible for these benefits, low- to middle-income earners will be required to make monthly contributions of between US$10 and US$16. Citizens whose earnings fall below a certain amount will not be required to contribute to the scheme. As in the case of the labor insurance pension system, contributions will also be made by the government and employers.
Under the original regulations, participants in the labor insurance pension system would be required to quit the program before Oct. 1 if they wished to take part in the national pension system. This resulted in panic among a number of workers who rushed to the CLA's Bureau of Labor Insurance in an attempt to claim their lump-sum payments in time to switch over to the national pension system.
The regulations have now been amended so that there is no deadline after which participants cannot switch between the two schemes, officials at the bureau said.
Write to Tso Lon-di at londi@mail.gio.gov.tw