Taiwan turns back the sands of time
Taiwan recognized the failings in its existing pension systems early. A new scheme was launched in July. It is already accumulating funds rapidly and the effects on Taiwan’s domestic capital markets are likely to be dramatic. There will also be numerous opportunities for global asset managers. Chris Leahy reports.
THE TAIWANESE ARE a resourceful people and accustomed to working things out alone. So when the inadequacies of their existing pension schemes became apparent the government moved quickly to reform the system. The problem was not so much underfunding – the difficulty in many Asian countries. In Taiwan the funds were barely funded at all. Bessie Liu, senior vice-president and general manager, department of trusts, at Central Trust of China, and the administrator of the existing labour pension scheme, explains. “We want to provide a social security system for workers,” she says, “but under the existing scheme, less than 10% of workers could get any retirement benefit under the law and amounts are small.”
This is principally because the existing scheme has draconian qualification requirements. “According to the law, the old system was a lump-sum payment to workers who have worked for the same company for more than 15 years,” says Lai Chin-Lin, deputy minister of the Council of Labour Affairs, the administrator of Taiwan’s new labour pension scheme. “In Taiwan, most companies are small and medium size, so they often can’t afford the payments.”
Athough a majority of employees failed to qualify for the existing pension schemes, even for those that did, employers often failed to make payments, meaning the system was clearly failing.