Taiwan is a front-runner when it comes to technological innovation, but it is also a leader in the global aging population stakes, a trend partially attributable to the nation’s comprehensive health care system.
This demographic fact of life is proving a major obstacle for Taiwan’s sustainable development, aggravating the country’s problematic pension systems and threatening to destabilize society.
ROC President Ma Ying-jeou has long recognized the challenge this trend poses to the nation. During a news conference Jan. 30 at the Presidential Office in Taipei City, he said Taiwan’s pension systems face severe challenges, including insufficient funding, differing benefits for retirees and an unduly heavy contributor burden on future generations.
Citing a Council for Economic Planning and Development study, Ma said by 2060 people aged 65 and above will comprise 39 percent of Taiwan’s population, up from 11 percent currently, while 15-64s will make up 51 percent, down from 74 percent.
“Other than demographic variables, major changes over the last 20 years such as revenue shortfalls in the labor insurance system and Band-Aid amendments to relevant laws have further exacerbated this problem,” Ma added.
Although the president described the situation as akin to a “runaway train heading toward a cliff,” he believes the current systems will not go broke in his second term. “It is my administration’s responsibility to ensure the systems last for at least 30 years. I pledge to implement an overhaul using a comprehensive, pragmatic, progressive and transparent approach.”
As part of this undertaking, Ma directed the Cabinet to organize a meeting in October last year to study the issue. Participants included representatives from the CEPD, Council of Labor Affairs, Directorate-General of Personnel Administration, Ministry of Education and Ministry of National Defense. He also appointed Premier Jiang Yi-huah, then vice premier, to head a task force coordinating the mission.
“The proposed reform will be a major task as it involves interagency collaboration and extensive communication with all segments of society,” Jiang said, adding that the mission is of paramount importance in that it will restore hope for younger generations.
Jiang said reforms will be carried out through strengthening financial structures of retirement funds; promoting social justice; fostering cross-generation understanding; and ensuring pragmatic and steady implementation. Proposed measures are to focus on adjusting benefits and income substitution rates; improving state-run retirement funds’ investment performances; and defining and ensuring government obligations, he added.
As part of efforts to build widespread support for the initiative, the Cabinet has organized more than 120 public hearings and seminars nationwide, and will continue seeking input from all parties involved.
Rising discontent with Taiwan’s pension systems has sparked street protests from local workers.Jennifer Wang, deputy minister of the Financial Supervisory Commission and former chair of the ROC Pension Fund Association, said that while the government is mulling specific measures mainly from the financial and technical perspective, the real threat to pension reform is Taiwan’s demographics. “Population aging is a universal phenomenon, but the problem is particularly severe in Taiwan.”
Citing U.N. statistics, Wang said the island’s dependency ratio—the number of people aged 65 and above compared to those 20-64—stands at 15 percent, a relatively low level compared to most developed countries.
“That number will balloon to 73 percent by 2050, almost as high as Japan, the world’s oldest country,” she said. “This issue must be properly addressed before any reforms can achieve their desired effect.”
According to Wang, in addition to the longevity risk, structural flaws developed over the years are a serious drag on the current systems’ finances. “For one thing, the performance of state-run pension funds leaves much to be desired.
“Under existing regulations, most of these funds are managed by civil servants who do not possess the necessary investment expertise. An insufficient selection of long-term assets also makes it difficult for the funds to achieve optimal asset allocation.”
Based on her experience, Wang feels that Taiwan should model its pension systems after those offered by leading economies and design a three-tier benefit plan. “Considering the country’s special circumstances, the government must offer basic social security benefits that account for between 30 percent and 40 percent of a pensioner’s income,” she said.
The second tier, comprising work-related retirement benefits, should account for another 30 percent. “Tax incentives could be employed to encourage individuals to set up personal retirement investment accounts, which ideally provide an additional 10 percent to 20 percent of income to retirees,” she said.
“Such a system will not impose too heavy a financial burden on the government, and at the same time ensure pensioners have between 70 percent and 90 percent of their working income for a decent life in retirement.”
C. L. Sun, a long-time labor rights advocate who has been studying Taiwan’s pension systems since 2001, believes widening the social security net for the country’s senior citizens is another worthwhile suggestion that would make reform more achievable.
“Housing and medical care accounts for a big chunk of senior citizens’ expenses. If the government can provide these services gratis, or at a very low rate, retirees will not need huge cash benefits on a regular basis.”
Equally important, Sun said, is the participation of the younger generation in reform discussions.
“The government’s decision to extend the retirement age has not drawn much attention from the youth,” he said. “This apathy does not bode well for the future as issues like this will have a profound impact on their lives.
“The younger generation needs to take a more active and visible role in the future lawmaking process so that a social catastrophe can be avoided.” (JSM)
Write to Meg Chang at sfchang@mofa.gov.tw