Taiwan Enacts Deep Pension Cuts for Teachers, Civil Servants

Reductions are expected to save the government nearly $46 billion.

In an attempt to prevent, or at least delay, defaulting on retiree payments, Taiwan has enacted deep cuts to pensions for public school teachers, civil servants, and political appointees.

“Now that these laws have been passed, pension system bankruptcy is no longer an urgent crisis in Taiwan,” Taiwan President Tsai Ing-wen said in a statement.

According to Taiwan government data, pensions for civil servants would have defaulted by 2030, while pensions for teachers would default the following year, if no changes were made to the current pensions system.

“It is estimated that these actions will save the public coffers NT$1.4 trillion ($45.8 billion),” said Tsai. “We will take the money saved and inject it into the Public Service Pension Fund to ensure that it will remain viable for at least 30 years.”

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The cuts include the phasing out of an 18% preferential interest rate public school teachers receive on their savings accounts.  Under the new regulation, the 18% interest rate on savings for teachers who receive NT$32,160 ($1,074) per month or more in retirement income will be reduced to 9% from July 1, 2018, to Dec. 31, 2020. It will then be cut to zero starting Jan. 1, 2021.

For retirees who opted for a lump-sum retirement payment rather than a monthly pension, the preferential interest rate will decrease to 6% over a six-year period.

Tsai said all pension systems need to be continually adjusted to stay in synch with the times.  “In carrying out the pension reform, we established a mechanism for regular reviews,” she said. “Now that we’ve had this successful experience, when it next comes time for a review of the pension system, we will have more confidence.”

The bill also lowers the income replacement rate for pensioners who are receiving NT$32,160 per month or more. Those with 35 years of service will have their income replacement rate drop to 60% from 75% of their pre-retirement income over a 10-year period. Those with 15 years of service will see a decrease to 30% from 45% over the same period of time.

Additionally, teachers’ monthly pensions, which are currently based on their salary during their last month of service before retiring, will instead be based on their average monthly salary in their final five years of employment. That will then be adjusted during a period of 10 years to their average monthly salary over the final 15 years of service.

“This round of pension reform has an important significance, for we’ve proven that pension reform is neither a political minefield, nor a taboo issue that absolutely cannot be broached,” said Tsai. “And no one will become destitute because of the pension reform passed.”

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