Study On 'Three-tier Safety Net' In Taiwanese Labor Retirement Protection

Population aging has become a worldwide phenomenon; in Taiwan, however, this phenomenon is even more vigorous than those developed countries— birth rate declines, intergenerational transfer fades, life span of elderly prolongs, and medical cost increases. Thus, retirement has become a vital issue of social policy.More than eight million labors compose the largest group in Taiwan, thus labor retirement is the most important pillar of social security. The Government has planned three-tier safety net: first tier, public pension; second, new corporate pension plan offered by corporation; third, labors' personal savings.One-time pension payment has been planning to be public pension for more than thirty years but yet not been fulfilled, for the increasing of insurance rate remains an un-solving problem. After twenty years debate, corporate pension now has a new plan which pays annually and will be put into practice at July 1st, 2005.Public pension plans to set 30% for earning replacement rate and the new corporate pension plan is 24.3%. These two sum up as 54.3%, which is in the same level of developed countries. However, the truth behind the number needs to be clarified. Public pension should be calculated based on the salary level when retiring, not the average salary of insurance period; corporate pension is based on an optimal assumption that the salary would increase 3 % and return rate of investment remains at least 6 % per year. These two earnings replacement rates are unrealistic, thus the Government should tell labors the truth so that they can plan the third tier safety net.Employers share the insurance fee of pension payment and cover new corporate pension. In fact, every item that employers share is included in salary—employers pay only one thing to labors, that is, salary, which means all the costs on employers would eventually become salary. When labors argue for welfare, they should think in terms ofmarket law and then the final equilibrium could be found.The present study suggests that public pension should set real 30% as the goal and corporate pension should down adjust to 20% instead so that this combined 50% earnings replacement rate could be acceptable. As for the third tier, labors can save within 6 % salary and get tax deduction under the new plan. They can also choose appropriate investment objects based on their risk attitude to enrich their retiring lives.Public pension and corporate pension are both compulsory pension, and this accumulated pension fund is such a huge amount of money, which would be exposed to the pressure of inflation for a long period of time. How to manage the fund effectively is the most important issue for retirement safety protection.