AmCham arrow Publications arrow Topics Archive arrow Topics Archive 2007 arrow Vol.37- No.2 arrow Editorial: An Overlooked Scandal
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An Overlooked Scandal

An article in the July 2006 issue of Taiwan Business TOPICS noted the problems encountered in getting the new Labor Pension Fund system fully operational. Creation of that fund was a major advance in Taiwan's social security system, helping to ensure the welfare of Taiwan's working population during their old age. The fund was inaugurated on July 1, 2005, and since then - as employer contributions equal to 6% of salary have been paid into some four million employee pension accounts - the total pool of money has been growing by almost NT$8 billion (US$242 million) every month. But because the Legislative Yuan has not yet acted to establish a Labor Pension Fund Supervisory Commission to set policy and oversee the investment of the funds, the accumulating assets have had to be funneled into bank accounts drawing meager 2% interest. Plans to invest the funds in attractive international and domestic securities under the guidance of professional fund managers have had to be put off.

The hold-up arose from a dispute between opposition legislators, who wished to ensure that the Supervisory Commission comes under legislative scrutiny, and the executive branch, which wanted it established as a non-government entity that could hire, free of civil-service constraints, a staff with private-sector financial experience. Last July, the Topics report found optimism at the Council of Labor Affairs (CLA) that the disagreement was close to being resolved, and that the necessary law would be passed in the then upcoming parliamentary session.

 

That session has since come and gone, and the Supervisory Commission bill - despite concessions made by the government - is one of many pieces of important legislation that failed to be adopted due to wrangling over the composition of the Central Election Commission. Incredibly there has been little outcry from civic groups or the media - apparently preoccupied with Taiwan's various political and financial scandals - over the consequences of that omission.

It should also be viewed as scandalous, however, that the lawmakers could sideline a bill with such direct and immediate impact on the public welfare. The amount of the contributions now in the fund has already ballooned to more than NT$130 billion (about US$4 billion), exacerbating the banks' problem of excess liquidity at a time of low demand for borrowing. More importantly, workers are being shortchanged in terms of the value of their future pensions. The typical annual return in the global capital market is estimated to be at least 5%, while domestic investments would generally bring somewhat lower earnings. At an average, say, of 4%, the US$4 billion already contributed would earn US$160 million annually. Instead, at the bank-deposit rate, the yield is only half as much, denying the work force some US$80 million a year - and the amount will be constantly growing. No wonder employees have felt discouraged from making their own voluntary matching contributions to their accounts.

The LY comes back into session shortly after Chinese New Year. One of its first orders of business should be to demonstrate a sense of responsibility to workers' rights by allowing the Supervisory Commission to start the job of prudent investment.
 
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