TAIPEI (Taiwan News) – The Legislative Yuan passed a package of unfair-pension reforms Tuesday, including the phasing out of the widely criticized 18-percent preferential interest rate for retired civil servants, which will occur over 30 months beginning in July next year.
The administration of President Tsai Ing-wen (蔡英文), which assumed office in May last year, took the reform of a pension system deemed to unfairly benefit certain classes of people as one of its priorities.
The 18-percent interest rate covered retired civil servants, teachers and military personnel beginning in 1960, as average wages for government employees were lower at the time than for private-sector workers.
Following partial reform in 1995, payments made by active and retired civil servants into the national fund before that date have still been covered by the rate of 18 percent.
Under the new measures approved Tuesday, the interest rate will be cut by half to 9 percent for the period from July 1, 2018 until the end of 2020 and end up at zero from 2021 for those who receive their retirement payments in monthly installments.
Civil servants who have opted to receive their pension in one lump sum will see the percentage drop gradually over six years until it reaches 6 percent in 2025, reports said.
As to the income replacement ratio, it will gradually drop from 45 percent to 30 percent over the course of 10 years for those who have worked at least 15 years, reports said. The income replacement ration is the percentage of working income that a person needs to maintain his standard of living in retirement.
For civil servants who have worked 35 years or more, the ratio will drop from 75 percent to 60 percent over 10 years, according to the reform package.
A salary floor of NT$32,160 (US$1,059) has been approved, meaning that government employees who make less in a month than that sum will not be subject to the new reforms.
In addition, the retirement age will rise up gradually by one year each year beginning from 60 in 2021 to reach 65 in 2026.