As its population is aging fast, Taiwan has to cope with
problems resulting from the continuing increase in the number of
old people who need to be cared for. The problems have been made
harder to solve by a constant decline in the fertility rate and
a structural change in traditional family system. However,
Taiwan lacks a comprehensive old age pension scheme in practice
like the one in developed countries. These problems are reviewed
in this paper. What is most urgently needed to be established is
a national pension scheme, which the government has failed to
launch in time.
The social security system in
Taiwan can scarcely satisfy the needs of its rapidly aging
population. A structural change in the traditional family has
rendered more elderly citizens without support. At the same
time, better public health helps people live longer. The working
population has to bear a heavier burden of providing for the
aged. On the other hand, the wage-earning population is not
growing fast enough to meet that provision because of a
continuous decline in the fertility rate. The social security
system, therefore, has to be reformed to cope with these
At present, Taiwan has three
insurance schemes that would provide for the aged. Certain
insurance is available to 1) government employees, including
teachers, 2) military personnel, and 3) labors. On their
retirement, participants receive insurance benefits. In the case
of those in the first two categories may include pension
payment. However, up to 3,840,000 of self-employed workers,
farmers, housewives and disabled persons and their families have
no due protection.
Plans have been made to launch a
national pension system to provide for old age benefits for all.
No action has been taken to set up a comprehensive scheme in
place, while the government is raising welfare allowances and
subsidies for those who are not covered by the national pension
program. Such allowance payment is unfair, and it also
discourages the working population to participate the future
national pension regime. In the meantime, the current labor
retirement payment scheme has also to be reformed.
The twenty-first century is the
century of the aged. According to statistics compiled by the
Ministry of the Interior, there were 1,480,000 elderly people in
September 1993, representing 7 percent of Taiwan’s total
population. That met the criteria of an old age society set by
the United Nations. The old age population has since increased.
In 2002, it topped 2,000,000 and soared to 2,130,000 at the end
of October 2004, accounting for 9.43 percent of the total
population. The old people will make up to 10 percent of the
population by 2011 and over 20 percent by 2031, outnumbering the
youth (under 15 years of age).
Between 1951 and 1971, the old
age dependency ratio was around 5 percent. That is, every 20
working people supported one elderly citizen in Taiwan. However,
the number of supporters dropped to only 9 in 1995. Also, the
old age dependency ratio has gone up to 13.25 percent in October
2004. In fact, there was an increase of 5 percent in the burden
on the working population during the last 20 years. By 2036,
according to estimate, every three persons in the working age
shall support one aged citizen. The rise in old age dependency
will make it harder for the wage-earning population to support
As a result of industrialization
and urbanization, Taiwan’s traditional big family system is
gradually disintegrating. A core family system has evolved. In
the meantime, because of the fall in the fertility rate, the
number of children per married couple dropped from 3.1 in 1976
to 1.7 in 1986. Taiwan’s fertility rate in 2003 was 1.4 per
woman, lower than the average 1.5 in developed countries and 3.1
in developing nations. Therefore, family resources for
transferring between generations are more limited. The ratio of
retirees to producers is expected to fall from 1/7.9 in 1985 to
1/3.8 in 2025. Thus, Taiwan’s ability to support the old age
population is gradually degrading.
Because the core families tend
not to take care of their elderly relatives, the government has
to take over the responsibility to provide economic security and
medical care for the aged. It is incumbent on the government to
launch a national pension system as soon as practicable to help
the aging population.
A national pension bill was
submitted to the Legislative Yuan for deliberation in 1994. If
adopted, the act would authorize the government to launch the
comprehensive national pension program in 1995. It was crowded
out by the national health insurance program inaugurated in that
year. Later, another national pension bill was introduced again,
and the government was planning to start the program in 2000.
The bill was not passed because financial resources had to be
pulled away for reconstruction work after a strong earthquake
wreaked havoc in central Taiwan on September 21, 1999.
The Democratic Progressive
government began to prepare a new national pension program after
2000. The Council for Economic Development and Planning put
forward different proposals, such as a full advance funding
scheme and a national insurance scheme which are commonly
referred to as the saving insurance system. However, the
contemplated program differed from the one based on a social
insurance system which the Kuomintang administration proposed in
the 1990s. Indeed, the full advance funding scheme was rejected
because it would cost too much. So was the saving insurance
system because of strong opposition from pressure groups. After
a national social welfare conference was called in 2002, the
Council for Economic Development and Planning had to revive the
social insurance system. Two years were wasted. So were at least
NT$1 million for research and NT$50 million for preparation for
the program a year.
The Kuomintang introduced a
national pension bill again in 2002. It was based on the social
insurance scheme. The government also proposed a similar bill.
The latter, however, does not make it mandatory for farmers to
participate. In this bill, farmers may opt for the farmers’
insurance, a poorly managed program under which participants
will receive no retirement benefits. The Kuomintang bill makes
it mandatory for farmers to join so that they will receive
retirement benefits. The government proposed to contribute 20
percent of the insurance premiums, which is doubled in the
Kuomintang bill. The two bills also differ in benefits to the
bereaved families. The government bill mandates a lump sum
payment, while the Kuomintang bill insists on annuities for
spouses for the rest of their life. Otherwise, the two bills are
almost the same.
Lawmakers of the ruling
Democratic Progressive Party and the opposition reached
agreement on adoption of a national pension program after the
two bills had been submitted. They were ready to act on the
bills. If it had been legislated, the program could have been
launched at once. The program was supported more than 60 percent
of the people, according to a public opinion survey conducted by
the Research, Development and Evaluation Commission in 2003.
Before the parliamentary election at the end of 2002, however,
the government decided to dole out NT$3,000 in monthly cash
allowance for each person over 65 years of age. Shortly
afterward, the government raised the monthly cash allowances for
farmers over the age of 65 from NT$3,000 to NT$4,000. The
government, meanwhile, tried to budget the spending for the
allowances in the proposed national pension program, which is in
large part financed by 45 percent of the lottery revenue.
Furthermore, in the lead-up to 2004 presidential election,
pressure groups lobbied against the Kuomintang bill. The
Legislative Yuan has taken no action on either bills. No
national pension program is in sight.
Cash allowances for people over
65 years old and national pension should play different roles in
social welfare. Payment of allowances is a form of absolute
collectivism, which emphasizes the citizen’s rights. The
allowances should be financed by the internal revenue. On the
other hand, social insurance is a form of semi-collectivism,
which emphasizes mutual help and personal responsibility. It is
financed by the premiums that the participants pay annually.
According to the government bill, every participant in the
national pension program has to pay a monthly premium of NT$750.
The government contributes 20 percent, or NT$150, and
contribution from each participant is NT$600. One has to keep
paying for 40 years since 25 years old, so that he may receive
NT$7,500 dollars monthly after retirement. However, all the
people over 65 years old are entitled to cash allowances without
paying any premium. That is grossly unfair. Whether the
government can raise enough funds to start and finance the
national pension program is open to doubt.
The Legislative Yuan has just
adopted a new labor retirement act. The act mandates the
establishment of a personal account system for pension. Savings
in the account accumulate according to years of work, and
account holders do not lose any penny when they change jobs.
Their rights to change jobs are protected and their retirement
benefits guaranteed. However, the success or failure of this
system depends on how the government manages the retirement fund
and whether retirement fund agents are capable of satisfactory
Some employers seem to resist
the new scheme which is scheduled to go into force in July 2005.
They are changing their pay system for employees. One popular
change is to lower the basic payment and raise the cash reward.
Other employers are increasing their outsourcing or hiring
part-time workers. Some medium-sized and small businesses are
considering laying off their employees and then rehiring them.
All these show that the employers are trying to cut the pay to
their staff. That is certain to reduce the labor retirement
fund. It is unclear whether the new retirement pension program
will truly benefit the labors.
One conclusion is inevitable.
Taiwan has to launch a national pension program based on the
social insurance system as soon as possible to cope with the
challenges that its rapidly aging population poses. It has to
make sure that the personal savings account system for labor
pension is rigorously implemented. In addition, the government
should plan ahead for old age care insurance and lay down new
population and immigration policies to ensure a sufficient
Chan, Hou-sheng and Lin,
Hui-fen (2003), The Emerging Welfare State, National Policy
Forum, National Policy Foundation.
Chan, Hou-sheng and Lin, Hui-fen
(2004), How to Establish an Income Security Safety Net for the
Elderly in Taiwan, Taiwan Development Perspectives, National