Chapter 2 Literature Review
2.2 National Pension System
National Pension Insurance is a kind of social insurance or social security. In accordance with the research of Qi-Ying Huang (2008), the primary social security system could be traced back to 1601 when the Elizabeth Poor Law was representative national assistance and social insurance established by labors was based on mutual aid.
National assistance, a rescue system for the poor is the responsibility of a nation or local public group granted by the Constitution. The so-called social insurance mainly unites majority social members who might encounter identical risks and who organize a self-rescue system of a danger community. Through the power of groups or nations, it forms a social solidarity for common danger members and provides group members with basic life protection by adopting the payment of “insurance principles” and the equality principle of consideration payment, and income-and-payment balance principle.
Pertaining to the legislation background of Taiwan’s National Pension Insurance, as the proportion of senior citizens over 65 years of age reached 7% in September, 1993, implying that Taiwan stepped into an aging society as claimed by World Health Organization of United Nations (WHO). It is estimated that in 2026, the population of senior citizens will account for 20% of total population, and the aging speed is faster than other European and American countries. In addition, according to statistics conducted by Department of Statistics, Ministry of the Interior, the average residual life of senior citizens over 65 years of age has been increasing, and economic security is people’s primary concern for their senior life. Moreover, as the rapid development of urbanization and modernization in Taiwan, the number of nuclear families has increased, and the traditional functions of family support for the elderly have gradually declined, the proportion of children supporting the elderly has decreased
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year by year, and commodity prices on the market continue to soar, providing senior citizens with economic security has become non-negligible in Taiwan’s social security system. However, due to diverse economic security systems for senior citizens in Taiwan, the security content of each system had to be reviewed, and there was still certain unfairness among systems. More importantly, quite a few citizens could not be included in the economic security systems for the elderly, so there was still a serious gap in the systems. Therefore, in light of this, related units have established a pension system to change the lump sum payment of social insurance for senior citizens and to include other citizens who have not enjoyed economic security for the elderly.
Meanwhile, Taiwan’s government has integrated various allowances for senior citizens to terminate the chaotic situation of allowances so that National Pension Act has thus been legislated.
In addition, the insured have to be above 25 and under 65 years of age, and have registered household in Taiwan. They have not been granted with payment from civil service and teacher insurance, military insurance, and labor insurance. Executive Yuan further illustrated that the year of labor insurance has to be 15 years before a labor can receive pension, so Taiwan’s government has referred to the transition period in other countries to request labors who have received pension before the implementation of National Pension Act and those who receive labor pension 15 years after the implementation of the act to participate in National Pension Insurance. Besides, although current farmers insurance is one of Taiwan’s occupational insurance, it does not provide old age payment, and its related security is not as complete as National Pension Insurance. Therefore, the insured of farmers insurance have become the insured of National Pension Insurance. Moreover, to avoid repeated allocation of resources and repeated subsidies from the government, farmers who have to participate in National Pension Insurance should cancel their farmers insurance.
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The main payment of National Pension Insurance includes insurance accidents such as old age, disability and death which are provided with old age pension, disability pension, funeral payment and survivor pension. The amount of payment is based on the total amount of money one has paid for the insurance on the month an insurance accident happens. The first year is based on basic salary, and the standard of payment is adjusted based on Consumer Price Index (CPI). Old age pension can be applied for when the insured are 65 years of age. The amount of payment is calculated with the following two methods, and the better method for the insured will be selected.
The insured are able to receive the pension monthly until they pass away. 1. Monthly insurance amount X year of insurance X 0.65% + 3,000; 2. Monthly insurance amount X year of insurance X 1.3%.
Besides, to prevent the insured over 38 years of age from obtaining too low pension amount even though they pay for the insurance each month, the aforementioned first method can serve as a supplement. In addition, to connect the program of old age allowances, National Pension Act provides those who are 65 years of age or older and who do not enjoy other social payment with NTD3,000 guaranteed pension, so farmers with Welfare Pension for Senior Farmers can receive National Pension instead when they are 65 years old.
In discussing the comparison of National Pension System, Ming-Rui Xie (2004) indicated that many countries implemented National Pension System in the world, and that it could be regarded as one part of the social welfare system. Among social security and social welfare systems promoted by European and American countries, social insurance is an important policy for promoting the social welfare system. The implementation method of the system can be divided into Bismarck Model and Beveridge Model. The former values the spirit of social insurance, and it is compulsory. In addition, labors are the main insured, and the social welfare system of
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Germany adopts Bismarck Model. The latter emphasizes universal welfare, and its social insurance stresses uniform rate and payment. Among which, uniform rate implies that labors and self-employed workers pay the same amount of insurance fees, and uniform payment refers to that each insured person enjoys identical payment.
However, dependent population such as children and women can enjoy supplementary payment from their government. The system in England adopts Beveridge Model.
In addition to Bismarck Model and Beveridge Model, there is another model called Swedish Model which emphasizes universal social security system. The model is composed of a social security system, active labor market policy, and large public service departments. As the social security system has been the core of Sweden, and before 1990, the promotion of the model was extremely successful in the country, it is called Swedish Model. However, until the end of the 1990s, due to the World War and economic crisis, Swedish Government revised it and proposed a new pension policy which is called statutory pension payment. The payment method of the system can be divided into three levels: the first level is basic pension, the second one is a legal and compulsory system related to salary, and the third one is additional pension from enterprises provided in accordance with labor and employer agreements. The content of different pension systems is as shown on Table 2.
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Table 2 Comparison of Pension Systems around the World
Nation Germany England Sweden
Pension model Bismarck Model Beveridge Model Swedish Model
Implementatio First level Old age pension includes
1. Employee
2. Self-employed worker
3. Those who take care of children under three years of age Germany in the 1880s for labors.
Meanwhile, it was a public social welfare system that determined the amount of payment, but it was not governed by the country. The feature of the system is that labors could avoid the risks of birth, old age, sickness, death and disability.
With regard to their income loss, it was based on a labor’s original income, but not his demand for lifetime insurance which was determined by the level and value provided by labor service. Labor
Sources: Yun-Wen Gu (1996), Hui-Fen Lin (2003), Ming-Rui Xie (2004) et al.
Generally speaking, the national pension systems implemented in other countries after the 1990s have been changed on the basis of economic conditions, and related rates or insurance fees have been gradually adjusted. The chief reform and development trend of national pension systems in the world is as follows:
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1. To elevate the payment receiving age or the payment years for receiving the entire amount of pension payment.
2. To change payment calculation formulas and reduce the amount of pension payment.
3. To elevate the minimum qualification period for receiving pension.
4. To adjust the amount of pension payment in accordance with commodity prices instead of the increase of salary.
5. To increase the residential years of the insured.
6. To stipulate payment amount with income or property investigation.
The comparison of related insurance rates, burden proportion, payment items, related pension of the aforementioned Labor Insurance Pension and National Pension is as shown on Table 3.
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Table 3 Comparison of National Pension and Labor Pension
Item National Pension Labor Insurance Pension
Insurance first two years, and 0.5% of insurance rate is added every year from the third year until it reaches 10%. Then 0.5% of insurance rate is added every two years until it reaches 13%.
Burden
Employer: 70％ , labor: 20％ ; government:
10％
2. Occupational worker: Labor: 60％ ; government: 40％
1. Ordinary accident: Birth, injury and sickness, disability (pension and lump sum pension), old age (pension and lump sum pension) and death (pension and lump sum pension).
2. Occupational injury: Injury and sickness, disability (pension and lump sum pension), death (pension and lump sum pension) and medical payment for occupational injury.
1. Disability pension: Those who do not have working ability for lifetime after being assessed.
2. Old age pension: 60 years of age with at least 15 years of labor insurance.
3. Survivor pension:
(1)Death during insurance period.
(2)Death during the period of receiving disability and old age pension.
(3)Those who have at least 15 years of labor insurance and who are qualified for old age payment, but pass away before receiving the payment.
Options None 1. Those who had labor insurance prior to the
implementation of National Pension, when the insured or their relatives can apply for
disability payment, old age payment or survivor payment, they have to choose
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Item National Pension Labor Insurance Pension
between lump sum payment or pension payment.
2. Thos who had labor insurance prior to the implementation of National Pension, and those who pass away during the period of receiving disability or old age pension, their relatives can choose the difference of the lump sum disability or old age pension in which received pension has been deducted.
Deferred pension: Those who are qualified for receiving labor insurance pension can receive an additional 4% of pension for each year being deferred. 20% additional pension at most.
Decreasing pension
None Decreasing pension: If those who are qualified for receiving labor insurance pension apply for receiving it one year earlier, 4% of pension will be reduced. 20% of pension can be deducted at most.
Source: Direct Selling Labor Union of Occupation—Taichung City (http://www.tccg-direct.glob.tw/topics.aspx?id=169)
To sum up, Taiwan had social insurance such as labor insurance, military insurance, civil service and teacher insurance, and farmers insurance for workers, but approximately over three million citizens above 25 and under 65 years of age could not participate in any social insurance. Therefore, National Pension Insurance System, a social insurance system, has been designed to bring social security and insurance to each one of Taiwan’s citizens. Besides, payment age for labor insurance pension has been gradually adjusted to 65 years, so if a labor retires at the age of 60, he still has to wait anxiously for another five years without any income. Although “decreasing pension” is available for labors to choose from so that they do not live without any income, some labors do not choose the option. Therefore, to general labors, it is one
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of their concerns regarding economic security during old age as they are not sure if they can still work and if they are healthy after they are 60 years old.
Related issues regarding National Pension Insurance lie in the insured who are chiefly housewives, farmers, and citizens who do not work. Therefore, National Pension Insurance has turned into disadvantaged insurance, which is difficult for us to expect its income redistribution function due to the financial abilities of the insured.
Moreover, as it is difficult to collect insurance fees, its benefits will be restricted, and it further influences the willingness and confidence of the insured to participate in the insurance. Therefore, it might not be feasible for the insurance to be compulsory. If Taiwan’s government wants to maintain the normal operation of the system, a great investment from Taiwan’s national treasury is required to maintain its financial operation. However, national public power might get involved to lead to one-way payment in Taiwan’s social insurance system, which might weaken reciprocity and social solidarity, and which might make the spirit of mutual aid among members disappear.
Therefore, people in general tend to turn to other commercial insurance to plan and save “money” for old age, and they even attempt to save additional retirement pension to supplement the insufficiency of expenses for old age. Commercial insurance will be discussed in the following section.
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