Ma Ying-jeou plans pension cuts to avert fiscal crisis

System becoming a burden on Taiwan's coffers as population ages

By Lee Seok Hwai, The Straits Times, 31 Jan 2013

TAIPEI - President Ma Ying-jeou has unveiled draft plans to slash government pension spending and prevent Taiwan's pension schemes from going bankrupt in the face of a relentlessly greying population.

Under the plan, retired civil servants will be able to draw 75 per cent of their salary each month, down from the current 95 per cent.

In addition, working civil servants will also be asked to contribute more to their retirement savings account while the government will pay less.

A much-criticised preferential interest rate of 18 per cent for saving deposits of retired civil servants, teachers and military personnel will be halved.

Retirement age for civil servants, calculated by adding the length of service to age, will be pushed back from 85 to 90, although police, firemen, teachers and nurses will be exempted.

For the 9.8 million Taiwanese working in the private sector, their monthly pensions payouts will be slashed by 30 per cent beginning in the ninth year of retirement, but the government says this version could be replaced by another which exempts low-income workers from the cut.

"For the past 20 years, the population has been ageing at an increasing pace while birth rates have plunged, people are paying less, retiring earlier and collecting more.

"The pension system has become a heavy burden on our country's coffers," Mr Ma, 62, said at a press conference yesterday. He was accompanied by Premier Sean Chen, Parliament speaker Wang Jin-pyng and Mr Kuan Chung, who oversees the 700,000-strong civil service.

"The state of our pension system is like a bomb whose fuse is burning shorter and shorter," the President added.

As it stands, said Mr Ma, the separate pension schemes for civil servants and private sector workers will go bust in 2019 and 2031 respectively.

The former is estimated to have potential debts of NT$7.9 trillion (S$330 billion) and the latter, NT$6 trillion.

If the reform plan is passed, said Mr Ma, "we will all get less money but my administration guarantees that we and our children will not have to worry for 30 years".

The government has been warning of a demographic time bomb due to Taiwanese reluctance to bear children even as average lifespan has stretched to 82 years for women.

Taiwan's aging index, or the number of people aged 65 and above for every 100 young people aged 15 and below, now stands at 76.2. In comparison, South Korea - which Taiwan sees as its main economic competitor - has an index of 68.75, Singapore's is 52.94, the United States' is 65 and China, 56.25.

Mr Ma's initiative, which the government says was finalised after more than 120 public forums participated by 11,000 people, was seen as a "brave" if flawed plan by the government-friendly United Daily News.

The opposition Democratic Progressive Party said civil servants, the bedrock of ruling Kuomintang support, would remain unfairly favoured. The party is drafting its own reform plan.

Mr Wang said a final bill would likely be sent to the legislature for review in April.