社會(析)094-006號

中華民國九十四年三月十七日
March.17.2005

Crisis and Challenge of Taiwan’s Aging Society

Convener, Social Security Division  CHAN, Hou-Sheng

Assistant Research Fellow, Social Security Division  LIN, Chien-Chen

  • Abstract

       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.

 

  • Introduction

 

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 problems.

 

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.

 

  • Rapidly aging population

 

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 the aged.

 

  • Falling fertility rate and changing family structure

 

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.

 

  • National pension program

 

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.

 

  • Labor retirement pension scheme

 

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 risk management.

 

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 working population.

 

  • References

 

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 Policy Foundation.

 

 

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