Civil Service Retirement System Reform in Taiwan- Viewpoint from Public Service Pension Fund Operation

Transcription

1 Civil Service Retirement System Reform in Taiwan- Viewpoint from Public Service Pension Fund Operation Presented by Chang, Che-Shen Minister, Ministry of Civil Service April 24,

2 Agenda 1 Introduction 2 Origins of The Public Service Pension Fund 3 The Current Landscape of Public Service Pension Fund 4 Retirement System Reform in Taiwan 5 Conclusion 2 2

3 1. Introduction New Contributory Pension Fund established the concept for both civil servants and government to contribute the pension reserve. It was introduced only 17years. Insufficient contribution since inception made a great impact on the financial health of the fund. In order to ensure the sustainable operation of the fund, public service pension reforms are essential. The first stage of reform has been accomplished. Establish three pillar annuity framework will be major mission in the future. The continuing reforms among the developed countries pension schemes will also talk into account. 3 3

4 2. Origins of The Public Service Pension Fund Totally Government-Financed System Became The Government Fiscal Burden After 20 years of study, the civil servant pension system was changed as of 1 July 1995 from a totally government-financed system to a Contributory Pension Fund that is supported by funds jointly contributed by the government and the participants. Upon the adoption of the new system, the Public Service Pension Fund was set up to oversee the supervision and management of the Fund. 4

5 3. The Current Landscape of Public Service Pension Fund Participant Distribution military 143, % Total organizations:7,760. Total participants:626,438;contribution rate:12% civil servants 290, % education 192, % civil servants education military 5

6 3. The Current Landscape of Public Service Pension Fund Accumulated Expenditure/contribution Since Inception unit: TWD 0.1 billion Item fund expenditures/ contribution civil servant education military total contribution 3, , , , accumulated To March, 2012 expenditure 1, , , expenditure/ contribution ratio 30.67% 45.27% 72.27% 42.27% 6

7 3. The Current Landscape of Public Service Pension Fund Strategic Asset Allocation Sort Item 2012 Strategic allocation (%) Actual allocation(%) Up to Dec,2011 Up to Feb,2012 Up to Mar,2012 Asset class Capital gain Fixed income Country Domestic Global Type In-house Outsource

8 3. The Current Landscape of Public Service Pension Fund (1).Focus on Asset Allocation In Stead Of Short Term Trading-From the long term prospective view The Importance of Asset Allocation Asset allocation accounted for 93.6% of a portfolio s longterm performance. Due to the long term features of the fund, focus on asset allocation in stead of short term trading. Based on the balanced revenue and expenditures, PSPF undertakes an actuarial and risk tolerant assessment as reference for setting target return of fund operations. The realized cumulated gain and yearly average return are TWD123.3 billion and 3.146% respectively since inception. It s quite stable from long term point of view. 8

9 3. The Current Landscape of Public Service Pension Fund (2).The Accumulated Collections still Exceed Accumulated Expenditures Total collections: TWD billion. Total expenditures: TWD billion. Net surplus: TWD 403 billion. No liquidity or shortage exposures because the Fund size keeps on growing. 9

10 3. The Current Landscape of Public Service Pension Fund (3)Low Interest Rates have become severe challenges US Fed expects to maintain at historically low interest rates through late The TWD 10-year bond yield is less than 2%. Declining interest rates have increased the value of pension liabilities. The Asset-Liability gap of pension funds is historically large since World War II. 10

11 4.Retirement System Reform in Taiwan (1).Essentialities to Reform The Retirement System The changes of population structures - Low birth rates - Populations are aging - Early retired These made significant impact on the funding ratio of public service pension fund. In order to insure the stable development of public service pension fund, a series of regulatory reforms are proposed. 11

12 4.Retirement System Reform in Taiwan (2).First Stage-Establish Reasonable Retirement System Defer the monthly retirement payment terms to 85 pension project. Age above 60-year-old and service year above 25-year or Age above 55-year-old and service year above 30-year are eligible. Delete the terms to those who are voluntary retired at the age of 55-year-old can get 5 more bases for the lump sum pension. Extend the eligible retired service year in order to encourage civil servants to work. Adjust the ceiling of legal contribution rate from 12% to 15%. Modify the monthly memorial benefit of the annuitant s spouse. Suspend the monthly pension payment as the retired annuitants go back to work. 12

13 4. Retirement System Reform in Taiwan Benefit From First Stage Reform 1) Reduce the government fiscal burden. 2) Improve the financial structure of the fund. 3) Put off the retired age of civil servants. 4) Retain the excellent experienced staff for public sectors. 13

14 4. Retirement System Reform in Taiwan (3)Second Stage Reform: Multiple-Pillar Annuity Global trend of pension reforms 1) Funded by civil servants and government to contribute the pension reserve. 2) Set up the Multiple-Pillar Annuity. 3) Reduce the income replacement ratio. 14

15 4.Retirement System Reform in Taiwan (3) Second Stage Reform: Multiple-Pillar Annuity(continued) Structures To Set Up Multiple-Pillar Annuity For Civil Servants Civil Servants Retirement Structures in Taiwan funded by civil servants and government set up three-pillar annuity set reasonable replacement ratio government & civil servants contribute the pension reserve. 1th-pillar:DB-insurance annuity 2th-pillar:DB-retirment annuity 3th-pillar: DC-personal saving annuity % of Income before retirement 80% 15

16 4.Retirement System Reform in Taiwan (3) Second Stage Reform: Multiple-Pillar Annuity(continued) 2th-Pillar 70% (DB) 3th-Pillar 15%-25% 2th-Pillar 30%-35% Personal Saving Annuity (DC) Retirement Annuity (DB) 1th-Pillar % (DB) The Current Replacement Ratio under Two-Pillar Annuity 1th-Pillar 15%-20% The Replacement Ratio under Three-Pillar Annuity Insurance Insurance Annuity Annuity (DB) (DB) 16

17 5.Conclusion Considering the development of Taiwan Civil Servant Pension Acts and the global pension reforms among countries, we need to reform the public service retirement policies by using three-pillar approach in order to deliver secure, sustainable and adequate retirement payment for public servants in Taiwan. Our objectives are to sustain the value of civil servants, to allocate the national resources adequately, to secure the sufficiency for public servants to retire with dignity and to ensure the permanent operations of the public service pension frame