TDB Vol. 1 No. 9: Pension Reform: A Bitter but Necessary Pill

TDB Vol. 1 No. 9: Pension Reform: A Bitter but Necessary Pill

When President Tsai Ing-wen (蔡英文) delivered her inauguration speech after being sworn in as Taiwan’s first female president on May 20 last year, she pledged to build a better nation for younger generations. The first and foremost task in fulfilling that goal, she said, is to reform the nation’s cash-trapped pension system that would otherwise go bankrupt within a decade. Stacy Hsu looks into the history of and the many challenges associated with this endeavor.

 

Before the Democratic Progressive Party (DPP)-dominated legislature passed the pension reform bills targeting retired civil servants and public-school teachers amid fierce protests in late June, the country’s pension system was a “political time-bomb” that many leaders before Tsai had tried — and failed — to defuse.

At the center of the problem are two notorious absurdities in the pension schemes of retired military personnel, civil servants and public-school teachers: the so-called 18% preferential interest rate and abnormally high income replacement ratios.

The preferential interest rate can be dated back to as early as 1960, when Taiwan was under authoritarian one-party rule. In light of inflation and the relatively low salary received by public servants back in the day, the Chinese Nationalist Party (KMT) regime issued a series of administrative orders to offer a preferential saving rate on civil servants’ pension payments in a bid to ensure their financial security after retirement.

According to the Examination Yuan, the administrative body in charge of managing public servants, the saving rate has undergone several adjustments since its introduction, from the initial 21.6% to 14.25% in 1970, 16.7% in 1979 (with the rate floor at 14.25%), and then to 18% (also the rate floor) in 1983.

The preferential interest rate was scrapped following the implementation of a new pension system in 1995, which increased civil servants’ pension benefits by allocating part of their monthly income to the pension fund, rather than relying on the government as the sole contributor.

However, it did not quash the controversy surrounding it, as public servants who were hired before 1995 were still entitled to the saving rate after retirement. (The amount of a retiree’s pension payment that is eligible for the interest rate depends on a public servant’s pre-retirement income and number of years of service prior to 1995.)

The meeting minutes of the Presidential Office’s Pension Reform Committee show that as of June last year, approximately NT$462 billion (US$15 billion) in pension payments from about 457,000 public-sector retirees were stored in bank accounts eligible for the 18% interest rating, putting a NT$82 billion dent in government coffers each year.

The committee’s deputy convener, Lin Wan-i (林萬億), estimated that the interest rate would not really become history until 2054.

Though the saving rate had its historical necessity, today it is mostly seen as a remnant of Taiwan’s authoritarian era, one of the roots of social injustice, and a form of political payout by the KMT to cement support among the nation’s civil servants, which has in turn created an uneven playing field for political parties.

Due to the preferential interest rate and/or public-sector employees’ ostensibly “unfair” pension calculation formula, some of their actual income replacement ratios (the percentage of one’s pre-retirement income) could be over 100%. This means they could earn even more in retirement than they did when they were on the workforce.

In 2006, despite leading a minority government, president Chen Shui-bian (陳水扁) of the DPP sought to reform the preferential interest rate. However, instead of gradually phasing out the rate, he only managed to cut down on the amount of pension payment from which a retiree could earn the interest rate by putting a cap on their income replacement ratio.

Chen’s successor, Ma Ying-jeou (馬英九) of the KMT, also made pension reform one of his policy priorities, describing the problem as so dire “people will regret it tomorrow if we do not reform it today.”

The Ma administration established a pension reform task force to solicit public opinions in 2009 before rolling out a draft plan in 2013. Despite the efforts, the plan was stalled at the KMT-dominated legislature at the time — allegedly due to electoral concerns and overwhelming criticism of what president Ma called a “painful decision” to cut year-end bonuses for public-sector retirees in 2012.

Failed efforts by her predecessors and fears of further alienating the DPP among public servants should have deterred President Tsai from making another attempt. Instead, she put pension reform at the forefront of her policies and joined hands with DPP lawmakers in ramming pension reform bills that many deem drastic through the legislature.

Under the bills passed so far, the 18% preferential interest rate will be reduced to zero two years after the bills’ promulgation scheduled for July 2018.

In addition, civil servants and public-school teachers (the draft bill for military personnel is yet to be drawn up) will see their income replacement ratio reduced to 60% within 10 years and ultimately be required to calculate their pension payment based on their average monthly salary in the final 15 years of employment, rather than their last month of service as currently stipulated.

Tsai’s reform success has reflected in her approval ratings. According to a survey by the TVBS poll center on July 12, the president’s support rate has climbed to 29%, from 21% in June.

Such efforts, however, are not without their costs. President Tsai has been shadowed by anti-reform protesters, some of whom have threatened to use violence or to disrupt events such as state visits by foreign presidents or the upcoming 2017 Universiade in Taipei. Two pan-blue parties, the KMT and its spin-off, the People First Party, are mulling filing a request for a constitutional interpretation on pension reform legislation.

Just as in other countries, pension reform is almost always a magnet of unpopularity and fierce protests. A good leader will know when to overlook temporary noises and focus on the long-term good.

TDB Vol. 1 No. 4: Trends in physical violence and assaults on the press

TDB Vol. 1 No. 4: Trends in physical violence and assaults on the press

Physical violence and denial of access to members of the press are two tactics that have been used with alarming frequency in recent months by civic groups bent on blocking legislation proposed by the ruling Democratic Progressive Party. J. Michael Cole reports.

 

Same-sex marriage and pension reform are two pieces of legislation that have resulted in escalatory action since late 2016 by civic organizations that are primarily associated with the pan-blue camp. In the former case, conservative Christian organizations have spearheaded efforts to block a marriage equality bill; in the latter, retired personnel, as well as deep-blue organizations such as the Blue Sky Alliance, have led the movement. While marginal, the Alliance has a track record of disruptive behavior and physical violence against officials.

As a result of the spiralling unrest, rather than be debated rationally the complex issues have become politicized, giving rise to a spectacle of emotions, crass party politics, divisiveness and disruptiveness. While passing off as normal civil society and purportedly emulating the student-led Sunflower Movement of 2014, the opposition groups are discrediting Taiwan’s democracy and undermine government institutions in the pursuit of goals that do not enjoy majority support across society and which tend to be diametrically opposed to the aspirations of younger generations.

More than 80% of young people in Taiwan support same-sex marriage; a majority of young people, meanwhile, support measures that will ensure the viability and sustainability of the pension system, which under current rules and after decades of abuse threaten to break the state coffers in the not-too-distant future.

Furthermore, the two groups mentioned above have taken actions that would have been inconceivable to the young members of the Sunflower Movement and groups associated with it, primarily violence against individuals and the systematic targeting of members of the press. Alarmingly, both trends have accelerated in recent months.

On several occasions since late last year, members of the LGBTQ community have been physically assaulted by groups opposed to same-sex marriage; in a few cases the assaults resulted in minor injuries. The use of violence against elected officials from the Tsai administration, as well as DPP legislators, has also become more frequent, with several incidents occurring outside the Legislative Yuan in Taipei this morning (April 19). Despite a police presence at the scene — clearly insufficient and often disorganized — a number of officials were grabbed at, pushed, or body-slammed; Deputy Taipei Mayor Charles Lin was pushed against a police fence, injuring his hand; another (Tainan City Councilor Wang Ding-yu) was repeatedly pushed and had a water bottle thrown at his face. New Power Party (NPP) Legislator Hsu Yung-ming was also pushed and splashed with water.

On an evening talk show on SET-TV, a convener of the Changhua Military Civil Servants and Teachers Association argued that “DPP rhetoric” had made them “very emotional” and that they could not be held responsible if they “killed someone.” Worryingly, this was not the first time that a member of groups opposed to pension reform referred to “killing.” In an earlier protest, someone argued (arguably in the heat of the moment) that President Tsai herself should be killed.

According to Wang, the protest groups may have been infiltrated by Chinese trouble makers. There is also a possibility that members of crime syndicates, many of them pro-China, are also playing a role in the protests, not so much out of interest in the policies but simply to undermine democracy and destabilize the Tsai administration. With more radical elements highjacking the movement, the grievances of the more moderate members of society who stand to be affected by pension reforms, and who understandably will seek to lose as little as possible in the bargain, risk being lost in the noise.

During the April 19 protest, which also spilled to the DPP headquarters, several members of the press reported being denied access to the venue. Protesters routinely asked journalists to see their press pass; media that were deemed to be too closely associated with the green camp (DPP and NPP) were surrounded by protesters and ordered to leave the scene; pan-blue and pro-China media, meanwhile, were left alone. The windshield of a SET-TV news vehicle was also smashed with a hammer. (During the Sunflower occupation, a journalist from the pro-KMT China Times Group was heckled by protesters but was never prevented from doing her work; criticism of the incident ensured this did not happen again.)

Photo: Yahoo News

Similar disruptive actions against members of the press (also mainly pro-green camp media) have occurred during protests organized by opponents of same-sex marriage legislation since 2016.

Both controversies have undermined democratic mechanisms and tarnished Taiwan’s image, which for some protesters appears to be the intended outcome. Shortcomings in personal protection for elected officials by law enforcement agencies, as well as failure to arrest and prosecute protesters for physical assault, have also contributed to repetition and escalation. Police’s unwillingness to ensure that members of the press have full access to protest sites and can carry out their work without interference has also created a hostile environment for journalists.

(Top photo: Match.net.tw)

No More Articles