A Pension Plan for the Nation, not Blue vs. Green Confrontation
United Daily News editorial (Taipei, Taiwan, ROC)
January 30, 2013
Summary: The broad outlines of the Executive Yuan's pension reform program have become clear. From what we see so far, the 18% preferential interest rate for retired civil servants is history. Past absurdities such as retirement benefits exceeding salaries are a thing of the past, never to be seen again. These two points alone show that pension reform is headed in the right direction.
Full text below:
The broad outlines of the Executive Yuan's pension reform program have become clear. From what we see so far, the 18% preferential interest rate for retired civil servants is history. Past absurdities such as retirement benefits exceeding salaries are a thing of the past, never to be seen again. These two points alone show that pension reform is headed in the right direction. But one form of preferential treatment remains, the income replacement rate and monthly retirement benefit calculations. This will determine whether pension reform will win public support and persuade veterans, civil servants, and public school teachers. There is no room for opportunism or carelessness.
Yesterday, before reporting to President Ma, the Executive Yuan and the KMT legislative caucus coordinated with each other. The process was smoother than expected. No significant disagreements arose. The main reason for this was that the Executive Yuan made adequate preparations. They considered the ramifications of pension reform at all levels. They left little for legislators to criticize. The channels of communication this time were also relatively open. They held over 100 grassroots level forums. They consulted people far and wide. They enabled the Examination Yuan and Legislative Yuan to coordinate with each other. They allowed dissenters opportunities to amend the bill. Even more importantly, the nation's circumstances are different. The public is more supportive of pension reform. People have examined the issue more closely and concluded that the arguments in favor of reform are valid.
In all fairness, sweeping the 18% interest rate into the dustbin of history was no easy task. The Executive Yuan sought relief. It distanced itself from the 1995 dividing line approach. It looked after impoverished early retirees. It used the income replacement rate to reduce preferential deposits for affluent veterans, civil servants, and public school teachers. It deftly performed an end run around the 18% preferential interest dilemma. For some time, the 18% preferential interest rate has amounted to a form of Original Sin that veterans, civil servants, and public school teachers have been forced to assume. With this reform, at least those veterans, civil servants, and public school teachers who have no chance of receiving these government benefits will no longer need to bear this cross.
Contrast this with the DPP's pension reform alternative. The ruling and opposition party versions have roughly the same income replacement rate for monthly benefits. But the Green camp version, also advocates incorporating the 18% preferential interest rate into the income replacement rate, gradually phasing it out. On this point, both sides seem to be thinking alike. Should the income replacement rate be high or low? Should it be 70%, 75%, or 80%? This may require some debate.
On what basis should government pensions for veterans, civil servants, and public school teachers be calculated? In the past it was calculated on the basis of one's salary during the year of retirement. The Ministry of Civil Service advocates using the labor insurance model. It would base pensions on one's average salary over one's last 15 years of service. This seems reasonable. This standard is more stringent than the last 10 years version proposed by the DPP. Seen in this light, the ruling KMT's attitude toward pension reform is no more conservative than the opposition DPP's. The Executive Yuan later changed its wording, to a vaguer "ten to twenty years." This was probably a response to ruling vs opposition party confrontation within the legislature. They wanted to allow for haggling.
Overall, this version of the Executive Yuan's pension reform proposal is solid. But many blank spaces still need to be filled. These will require delicate handling. If the Ma administration wants to convince all parties, he must adopt a more aggressive approach. He can emulate the approach used to care for impoverished veterans, civil servants, and public school teachers. He can establish a floor as well as a ceiling. This would eliminate the phenomenon of 100,000 to 200,000 NT monthly benefits for wealthy retired officlals.
The government is distributing monthly benefits. Its aim is to provide retirees with benefits that are appropriate. It is not to enable them to strike it rich from retirement benefits. That would be contrary to justice and reason. That would be wrong even if the nation had the money, which it does not. Also, more highly paid civil servants received large salaries while in office. They usually have considerable savings. After retirement they often have other sources of income or part-time employment. Yet again the government provided them with exorbitant monthly benefits. This was merely icing on the cake. This merely increased the injustice. Take the Executive Yuan's thinking about labor insurance pension reform. For pensions over 30,000 NT, it would reduce its annual capital payment rate from 1.55% to 1.3%. This "law of diminishing marginal utility" could be applied to highly paid officials. This would be more consistent with the spirit of reform. This would also mollify ordinary veterans, civil servants, and public school teachers.
The current pension reform underwent negotiations within the Executive Yuan. The ruling and opposition parties' versions are comparable. Differences remain, but the basic direction is the same. Therefore one can be optimistic. What's important is that everyone, including the ruling and opposition parties and the public, understand that pension reform is inevitable, and the only just and reasonable course. Only reform can win public approval. Only reform can satisfy reformers. Therefore, the Ma administration must proceed cautiously. It must not repeat the capital gains tax fiasco, which was fair yet won little public approval. Labor insurance issues must not be broached now. Mentioning them in the same breath is sure to provoke controversy. If nine million laborers and one million veterans, civil servants, and public school teachers lash out simultaneously, the Ma administration would be unable to survive the political storm.
We would like to remind the DPP. Successful pension reform is good for everyone on Taiwan. The Green camp must not use the issue to make political hay and engage in irrational obstructionism. If the DPP can offer a sound alternative, the public will be only too happy to support it.