Finance:
The KMT’s proposal to halt pension cuts may lead pension funds to go bankrupt in a few years, potentially jeopardizing intergenerational fairness, according to a report from civil servants.
The draft law put forth by the Central and Nationalist Party (KMT) Caucus seeks to prevent pension cuts for civil servants, teachers, and military personnel. However, the Ministry of Public Service warns that this could hasten the depletion of public service pension funds within the next four to five years.
Legislative Speaker Han Kuoyu expressed on August 14 that amendments to the legislation governing civil service pensions, known as the Retirement Leave of Public Service Act, are necessary and that changes might start shortly following Saturday’s recall and referendum.
The ministry’s written report highlights a significant imbalance between the fund’s revenue and expenditures, estimating it could be exhausted by 2030, based on an actuarial assessment from 2013.
Established in 2016, the National Pension Reform Committee seeks to ensure the fund’s viability at least until 2051. Reforms enacted in 2018 included gradually decreasing the maximum income exchange rate each year while increasing pensions to 65.
However, if the KMT moves forward with stopping the annual reductions this year, the fund may face extinction much sooner than anticipated.
Should civil servants hired after July 1, 2023, transition to the “individual” pension system, the deadline for depletion could extend to 2046.
The report identifies three main factors contributing to the anticipated depletion of pension funds. First, the reductions in income exchange rates from 2018 to 2023 resulted in savings of NT $277.4 billion (around US$9.07 billion) for the fund. If this policy is scrapped, these savings will vanish, necessitating an extra NT $29.4 billion to support individual pension accounts.
Secondly, reduced capital in the investment fund would naturally lead to lower investment returns. Following the 2018 reforms, the fund’s income-to-expense ratio was more balanced, sitting at 145.3% in 2019.
Lastly, halting annual adjustments to the alternative ratio would create a financial gap. If the government has to fill this shortfall, it could impose a heavier tax burden on future generations, contradicting the intent of ensuring intergenerational fairness.
Previous reports noted that 70% of retired civil servants earned an average monthly income exceeding NT $50,000 last year, with a subset earning between NT $60,000 and NT $80,000.
The ministry pointed out that these retirement incomes are already above the average private-sector salary, representing about 80% of the salaries for active civil servants. Thus, putting a stop to annual cuts would essentially translate into added benefits.
Rosalia Wu, CEO of the Democratic Progressive Caucus, remarked that while there is a need to consider civil servants’ rights, the focus shouldn’t be exclusively on retired personnel at the cost of current workers and future generations.
She warned that the KMT’s plan to freeze pension cuts could harm the nation’s finances, undermine generational justice, and push pension funds toward bankruptcy, leaving little room for compromise in government or parliament.
KMT Caucus Vice-Chancellor Lo Chih-Chiang insisted the party’s stance on the law amendments is transparent. He articulated that the government’s focus should be on supporting civil servants rather than battling social sector issues or retirees.
He further noted that reforms shouldn’t be constrained or segmented, saying that respect for the contributions of civil servants, teachers, and military personnel is essential for achieving long-term stability, as well as fairness to the public and grassroots civil workers.
