AmCham arrow Publications arrow Topics Archive arrow Topics Archive 2003 arrow Vol.33- No.11 arrow Issues 3: Shaping a New Pension System
Issues 3: Shaping a New Pension System PDF Print E-mail

Three separate plans for reforming the pension system are now before the legislature. What will be the insurance industry's role?

 

Proposals before the legislature for a new pension system in Taiwan have aroused considerable debate, as well as concern within the insurance industry about the role its companies will be able to play in the new system.

As it stands, Taiwan's pension system is in need of change. That much is agreed upon across the board. What form the new system should take is the bone of contention, and one that will have significant implications for the insurance industry.

Under the current labor standards law, accrued seniority within the pension system is restricted to service within a single business entity. Leave the company and your pension system starts again from scratch. That was a system that worked a generation ago when life-long service was the norm. But all parties concur agree that this provision no longer suits the needs of Taiwan society.

From there, however, opinions differ on how the new pension system should look. Three different plans have been drafted, each with its own support base. Plan 1 proposes a personal retirement account that would pay out the accumulated investment principal credited to the account plus any earnings on that account. Think of it as a bank account that is regularly topped up by the employer.

Plan 2 would see pensions paid according to defined benefits, essentially an annuity system similar to what is common in other markets. The formula for calculating the payout is somewhat complicated, but is a product of average salary and the duration of contributions to the account. The payout in this approach would be on a regular basis over the lifetime of the beneficiary. Plan 3 is also an annuity, but with variations from scheme to scheme in the payout and other benefit terms to be designed and provided by insurance companies.

According to a report presented at a recent AmCham Insurance Committee meeting, Plan 2 is the approach favored by labor because it is regarded as providing workers with the strongest financial security. Labor gives mild support to Plan 1 but rejects Plan 3 outright.

Conversely, the insurance industry prefers Plan 3 due to its greater flexibility. Yet given the heavy lobbying from labor groups and opposition in the Legislative Yuan's Welfare Committee, Plan 3 appears unlikely to pass.

As a result, the industry's focus has turned to trying to assure a place for its companies in the implementation of Plan 1. Current debate has left open the possibility that insurance companies could be shut out of the pension system altogether, with pension fund administration put in the hands of the Labor Insurance Bureau.

The industry is therefore lobbying for insurance companies to be included as providers of pensions under Plan 1, emphasizing its companies professionalism and wide expertise in financial management. If that approach is accepted, then the insurance industry can still play an important role in the new pension system.
 
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