Resuming the March of Welfare State (2005-Present)

After the retrenchments of the Taiwanese welfare state in 2004, the government returned to social insurance for delivering old-age, disability and survivor’s pensions to the general population in 2007 as well as the policyholders of the LI system in 2008. In 2013, as illustrated in Table 2, Taiwan has developed a welfare state that aims to provide a sufficient standard of living for the general population mainly through social insurance programmes, and at the same time to transfer additional resources e.g. social assistance, social allowance and social compensation provisions and welfare services to vulnerable groups to enable them to lead independent lives.

3.3.1. The National Pension System in 2007

The National Pension (NP) system was planned in 1993 by the KMT government for the purpose of competing with the DPP’s social allowance propositions for senior citizens during the local government elections. It was originally devised as a social insurance system but it was later suggested that it be changed into an individual account programme. The NP system remained a social insurance system according to the decision made by the National Welfare Conference in 2002 and was finally approved in 2007 and enforced in October 2008.

Beyond this, the decision to promulgate the NP system was in effect the result of competition between the KMT and DPP. At the time, the DPP was in office and attempting to win the presidential election of 2008 by accomplishing both social achievements i.e. implementing the NP system and transferring the LI system into pension benefits. Because the KMT held more than half of the seats in the Legislative Yuan, the congress of Taiwan, it was difficult to pass both. As a result, the KMT agreed to introduce the NP system in 2007 and postpone the reform of the LI system until they retook power in 2008 (Kuo 2011).

The policyholders of the NP system are chiefly the non-working population (particularly housewives), unemployed people and students over 25 years old. This programme is based on the Beveridge Model meaning the system collects flat-rate contributions and renders flat-rate benefits. In this way, non-working people and the retirees at the time the NP scheme was introduced are entitled to basic level of old-age pension, the permanently disabled are eligible for disability pension, and the unemployed and students can collect pension rights during the periods they are not engaged in gainful

The Development and Reforms of the Social Security System … 21 hand, alleviating the financial burden on the government created by the Living Allowance programmes introduced from the mid-1990s by integrating them into the NP system and, on the other hand, accomplishing the universal coverage of social insurance provisions and making up the gap of welfare discrimination between governmental employees, private sector workers and the rest of Taiwan. However, in fact, for one thing, the Living Allowance scheme for farmers was not included in the NP system for the reason that their benefit level was and is higher than the other groups that previously applied to Social Allowance schemes and it is not possible to award different levels of benefit in a social insurance system simply because they have different status.

For another thing, as Lin (2004) argued, political parties may be, and it did happen quite often, able to gain support in elections by manipulating benefit levels.

3.3.2. The Reform of the Labour Insurance System in 2008

The three main issues with social security provisions in Taiwan before the 1990s – medical and outpatient benefits for workers and their dependents, unemployment benefit, and claims for pension benefits from private sector employees – were tackled one after another when martial law was lifted in 1987. The first two issues had been accomplished by introducing the NHI and unemployment benefit schemes in 1995 and 1999 respectively. However, the annuitisation of the LI system had not been carried out since the draft plan was proposed in 1968. It was again submitted in 1994, but was still not considered in the policymaking process.

The DPP government brought in this reform plan during the presidential election of 2008 but it was intentionally postponed by the KMT legislators because, for one, they sensed that the draft bill would be able to better respond to voters’ social security needs than the NP scheme and may gain more support, for another, KMT legislators proposed to render higher replacement rates for every year of contribution. Also, the KMT could easily turn down the DPP’s draft bill on LI reform because it held over half of seats in the Legislative Yuan.

Despite a series of negotiations and competition between the KMT and DPP throughout the policymaking process, a great breakthrough was made completing the overall development of the Taiwanese welfare state in 2008.

When compared with the requirements on social provisions for employees suggested by the ILO Conventions 102 and 128,the new LI system fulfils most of the criteria. Some important features are as follows:

 Old-age, disability and survivor’s pension benefits are put into practice.

 Policyholders receive 1.55% of replacement rate for every year of contribution, and there is no cap on this, which is an incentive for policyholders to claim old-age pension benefit rather than a lump-sum and is also a strategy to achieve financial sustainability.

 The pensionable age is set at 60 years old, and the rules about early and postponed retirement have been introduced. That is, the amount of pension benefit will be reduced or increased by 4% for every year of reduction or extension, to an extent of up to 20% or 5 years.

 The pensionable age will be postponed for 1 year in every 2 years from the onset of the new LI system until it reaches 65 in 2019.

 The contribution rate is programmed to be raised from 7.5% to 12% in order to sustain the finance.

 The benefit level is adjusted along with the consumer price index (CPI) when the accumulated change exceeds 5%.

 The seniorities accumulated in the NP and LI programmes are vested and integrated when computing benefit level.

A debate about reforming the LI system started in October 2012 on the basis of an actuarial report addressing a potential problem with the contributions, which may not be sufficient to finance payouts from 2017, meaning the system will be in debt from 2027 (Shao 2012). This then turned into a public discussion on Labour Day 2013 about reform issues and proposals for further reforms; the indications were that workers did not agree with modifying the current conditions of the LI system but agreed to increase contribution rates if necessary in the future¹⁰ .Nevertheless, the government did not intend to discuss the reform with the public and abruptly stated to reduce benefit levels by 30% of current levels and raise contribution rates from 12% to 19.5% at the same time. This issue is still developing at the time of finalizing this chapter in June 2013.

10 Please refer to ‘Disagree with the Government’s LI Reform Propositions’

http://tw.news.yahoo.com/%E5%8F%8D%E5%B9%B4%E9%87%91%E4%B8%8D%E7%

95%B6%E6%94%B9%E9%9D%A9-%E5%B7%A5%E6%9C%83%E4%BA%94-The Development and Reforms of the Social Security System … 23