Taiwan Today

Pension reform is helping realize President Tsai Ing-wen’s vision of an equitable and sustainable system for generations to come.

When Lin Wan-i (林萬億) came to make the concluding remarks during the final National Pension Reform Committee (NPRC) meeting at the Presidential Office in Taipei City, he understood the gravity of the moment. Commencing in June 2016, a month after President Tsai Ing-wen (蔡英文) began her first term, the weekly summits were the foundation upon which Tsai launched her pension reforms, one of the key promises in her campaign platform. Over 20 weeks, the committee heard passionate arguments for and against the existing systems, with Lin listening patiently in his role as NPRC chief executive and minister without portfolio overseeing social welfare affairs. “My promise to Tsai was to get the job done in a fair and impartial manner. I never wavered from that commitment,” Lin said.

The question of how best to reform Taiwan’s multitiered pension system has divided politicians and public alike for many years. The country’s retirement plans differ by occupation, with separate schemes for those working in the military, education, civil service, farming and private sectors, as well as for the unemployed. The latter, known as the National Pension Insurance, was launched in 2008 to cover the sizeable number of people excluded from the old age safety net, which included nonworking spouses and freelancers. Its premium currently stands at 9 percent of the minimum insured wage for the employed—NT$18,282 (US$631). Those who join pay 60 percent of the premium, with the government covering the remainder. Disabled individuals and lower income earners pay a reduced amount or nothing at all.

Another key development occurred the following year with the introduction of the Labor Insurance Annuity, which gives workers the option of taking their old-age benefits under Taiwan’s labor insurance as a monthly pension instead of as a one-time cash lump sum. Lin was one of the chief architects of these changes in his first stint as minister without portfolio from 2006 to 2007, having been involved with calls for pension reform since working as a professor at Taipei-based National Taiwan University in the early 1990s.

Push for Change

Voices calling for expanded access to retirement support grew more prominent following Taiwan’s democratization starting in the late 1980s, which was part of a wider expansion of civil society and social activism during the period, according to Yeh Chung-yang (葉崇揚‬), associate professor of sociology at Taipei-based Soochow University. “People now have higher expectations of what the government should provide in terms of old age welfare,” he said.

With growing expectation has come increased responsibility for the government to care for senior citizens, a role that was once filled almost exclusively by families. But the shift has not been without its cost to the public finances. Taiwan’s rapidly aging society has led to a reduced working population available to pay into retirement pots, leading to concerns about the future viability of the nation’s various pension systems. Consequently, Yeh said, the decision to carry out wide-reaching reforms under the Tsai administration was unavoidable.

After the consultation period, the NPRC concluded certain pension schemes were unsustainable, specifically those for public servants, teachers and military personnel. Without reform, these funds were predicted to go bankrupt by 2031, 2030 and 2020, respectively. The situation was further exasperated by the 18 percent preferential interest rate on savings for retirees using these plans, which placed a heavy financial liability on the local and central governments.

In June 2017, the committee’s proposed revisions were passed by the Legislature, entering into force in July the following year. The amendments included raising personal contributions, lowering payouts and increasing retirement ages. Notably, the income replacement ratios for retired civil servants and teachers, which could easily exceed 90 percent before the amendments, were decreased to less than 75 percent for those with 35 years of service, with the amount scheduled to drop further to 60 percent in 10 years. “These changes bring Taiwan in line with international standards for providing a comfortable retirement,” Lin said.

The reforms were not without controversy, as groups representing civil servants, teachers and military personnel strongly resisted some of the changes. But the government remained clear-eyed in its decision-making, knowing the move was both necessary and morally justified, according to Lin. Aside from financial pressures, the question of intergenerational fairness was high on the agenda, with younger workers paying for benefits they would most likely never receive themselves, he said.

Example to Follow

In Taiwan, senior citizens have an additional layer of security thanks to the National Health Insurance (NHI) system. Launched in 1995, the NHI provides universal coverage, where previously the elderly and children were mostly excluded from employee health insurance plans. Today, the system is widely regarded as one of the country’s greatest achievements, ensuring cheap and easy access to Western and traditional Chinese medicine, with older adults getting the most utility from its services. According to the latest statistics from the Cabinet-level Directorate General of Budget, Accounting and Statistics, people aged 65 or over made up 14.2 percent of Taiwan’s population but accounted for 38.2 percent of NHI expenditure in 2018.

The success of the NHI shows what it is possible for Taiwan to achieve with the correct policy and public buy-in, providing a model for the country’s pension systems to aspire to, said Yeh, noting how high-quality care is provided regardless of an individual’s wealth or social standing. In the long run, he suggests merging the various pension plans into a single option, thereby reducing administrative costs and making public education campaigns more effective.

Such an overhaul remains a possibility, according to Lin, but the priority is to improve the current systems as much as possible. While the government’s reforms have secured the immediate future of Taiwan’s pension systems, further changes are needed before a suitable long-term solution is reached for the entire country. “We need to seize the opportunity to leave a lasting legacy,” Lin said. “Older adults deserve to retire in comfort and with dignity, but younger generations must not shoulder all of the burden. After all, everyone has an equal right to economic security.” 

Write to Pat Gao at cjkao@mofa.gov.tw