The Political, Economic and Social Background to the Development of the Welfare State from 1980

As Chen (2001), Hill and Hwang (2005), Hsiao (1992) and Wong (2005)

The Development and Reforms of the Social Security System … 11 law in 1987 led to the transformation of Taiwanese society. Although demands for social provisions were made during this period, social policies were subordinated to economic policies because the government believed that substantial welfare reform would reduce prosperity (Holliday 2000).

Therefore, most drafts of social provisions and pensions laws were reviewed and proposed by the Council for Economic Planning and Development (CEPD). However, the pressure of elections from the early 1990s forced candidates to consider welfare issues and put them into effect on coming to power, which moved Taiwan away from a class-specified regime and towards a more developmental-universalist welfare regime. Most of the changes after 1987 were, in fact, due to the triumph of the ‘out-of-party’ movement.

Since the KMT was the only approved political party during the period of its dictatorship, there was no freedom of speech, association and publication.

For this reason, some Taiwanese intellectuals initiated movements in the early 1950s to oppose the polity and challenge the prohibition of civil rights under martial law. In the 1970s, the out-of-party movement broadened from parliament to more intense street protests seeking human rights. The efforts of the movement eventually opened up opportunities for protestors to organise their own political party, the Democratic Progressive Party (DPP), which was started in 1986 and took part in all levels of elections (except the presidential election). In the following year, 1987, martial law was lifted.

The unequal treatment of different classes in various sectors of society soon became the target of social activists and the DPP. Accordingly, people’s needs for social provisions came to be the main focus of elections in the 1990s. The DPP proposal to issue social allowances to the elderly population brought them their first triumph in the election of local governors in 1993.

Although the KMT proposed the National Pension (NP) scheme to compete with the DPP, immediate benefits seemed to be favoured by the public (Tang and Yeh 2006).

Following the DPP’s success in 1993, a social allowance programme for senior peasants was introduced in 1995 and allowances for senior citizens and aboriginals proposed in 2000 (both of which were introduced in 2002) helped the DPP into power between 2000 and 2008 (Lin 2007). However, because these three programmes were not based on statutes and the benefit level was adjustable, the increase of the benefit naturally became a hot issue in subsequent elections. Even though the expansion of social allowances gradually approached universal coverage, the difference between the benefit for peasants and the other two statuses was that the first programme was not

The establishment of the Labour Pension (LP) scheme was one of the major achievements of the DPP government. Because the conditions for claiming retirement payments under the Labour Standards (LS) scheme were hard to meet, as mentioned above, calls were made for its amendment or replacement with a new system from 1990. Some committees were organised for investigating the reform during the 1990s, but no consensus was reached because the discussions stopped at whether to apply the individual account defined contribution scheme or Pay-As-You-Go defined benefit scheme. This problem was raised at the Conference on Economic Development in 2001, which was arranged by the DPP government to negotiate some pending issues.

At this meeting, participants agreed to put the individual account defined contribution scheme, Pay-As-You-Go defined benefit scheme and private insurance scheme together in practice. That is, workers would be able to choose the scheme on their own behalf. However, the Council of Labour Affairs did not follow this consensus and abandoned the Pay-As-You-Go defined benefit scheme. Although legislators saved the defined benefit plan and held hearings to scrutinise the issues, the Pay-As-You-Go scheme was ultimately turned down without a sound reason (Fu 2007; Kuo 2006).

Notwithstanding the great differences of opinion on pension reform between the public, academia and relevant authorities, the LP scheme was finally passed on 11^th June 2004. Since then, the LS retirement payment scheme has been gradually phased out and will be replaced by the LP scheme in the future, but the seniority earned under the LS scheme will not be transferred to the LP scheme. That is, the pension rights will not be renewed when shifting jobs or quitting the labour market before fulfilling the conditions.

The establishment of the National Pension (NP) system was another achievement of the DPP government originally proposed by the KMT government, in this case, in 1993. A first draft was proposed by the CEPD in 1995 but no further action was taken. National Pension Insurance was discussed under DPP rule in 2002 but was again put aside. The investigation was resumed in late 2004 and there were intensive debates on the coverage, contribution rate, replacement rate and the way to build connections with other social insurance schemes (namely, Labour Insurance, Insurance for Military Personnel, and Insurance for Civil Servants and School Faculty). The NP system was eventually approved on 20 July 2007 and not only aimed to cover the non-working population, but also provided a minimum level of pension benefit and bridged the other three social insurance systems, therefore it could help the unemployed continue accumulating pension rights. It can be seen as a

The Development and Reforms of the Social Security System … 13 scheme signifies the change of government ideology on pension policy from occupation- or class-based to nation-based albeit a virtually class-based scheme because it serves those who are not categorized as any established class. Moreover, it transforms the temporary living allowance programmes into a statutory scheme which confirms the importance of maintaining retirement income security.

The amendment of the Labour Insurance (LI) system was another landmark of pension reform in Taiwan. Because the lump-sum retirement payment of the LI provisions could not deal with people’s longevity risks, offset inflation and assure replacement rates, the DPP government intended to annuitise LI benefits after they came to power. The investigation and hearings started in 2006 and concentrated on the replacement rate that could be earned for each year of contribution, adjustment of payments, increase of contribution rate, and financing. The discussion became intense after the NP system was introduced in mid-2007 because the public hoped the long-lasting problem of the LI scheme could be solved at the same time. An amendment was eventually promulgated in late 2008 and the new scheme was implemented in 2009. Although this reform totally changed the payment method of LI benefits from lump-sum to annuity, the coming issue was about whether one could receive more in the new scheme than the old.

Clearly, private sector workers’ retirement income security has greatly improved after 50 years of reform and the inequality between different statuses of employees has been reduced, but there are still some gaps to be narrowed such as those related to replacement rates. Moreover, although the NP scheme is designed to provide a solution for the problem of universal social insurance coverage, there are some potential deficiencies of the scheme such as the take-up rate and disincentives of participation. Thus, while it seems like the ambition of universal coverage is about to be realized, the relevant authorities still have to remain careful about finding faults and remedying them.