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Post-retirement pension reform
The Retirement and Compensation for Private Schools is a defined-contribution pension plan for 51,000 private school teachers and staff in Taiwan. Also known as the Private School Fund, it was the first pension fund in Taiwan to introduce a member choice platform in 2013. It is now looking to revamp its withdrawal process by allowing members to place their retirement contributions in a target-date fund option. The option will be made available to members beyond the official retirement age of 65 years.
According to Lai Jin-Nan, the fund’s executive secretary, the move is aimed at providing better protection, especially for members with little financial knowledge.
Members were initially provided with three investment choices – conservative, steady growth, and aggressive – based on their risk tolerance. Four years later, the fund launched a fourth option – a target-date fund, which forms a hybrid of the three strategies whilst automatically allocating more to the conservative portfolio choices when members near retirement age.
Lai observes that members’ investment preference has changed significantly over the years. Around 96% of members opted for the conservative choice in the early stage regardless of their age and risk tolerance. However, they are now more financially mature to select the choice best-suited to their risk appetite.
“Currently, around half of our members opt for the target-date fund choice,” Lai says in an interview with Asia Asset Management.
He emphasises the fund continues to optimise the withdrawal process in a bid to help members better manage their retirement savings.
In 2019, the fund began to allow its members to retain their pension accounts after retirement, giving them the opportunity to decide whether to withdraw funds as a lump sum or on a regular basis, depending on their personal financial circumstances.
“The measure has been very well received so far and withdrawals made in a hybrid form allows members to keep part of their pension in their retained accounts,” Lai notes.
That said, under the current system, members are required to provide further instruction on investment choices at the age of 65 if they choose to retain their contribution. There are currently three options to invest the roll-over money, again conservative, steady, and aggressive, depending on the individual member’s appetite for risk.
According to Lai, the fund is now considering the feasibility of introducing the target-date fund as a choice for retained account holders.
“With this inclusion, there will be no requirement for members who choose the target-date fund choice to make a second investment decision during their retirement,” Lai says. “Their contributions will transfer automatically to the target-date fund choice in the retained accounts.”
The fund is currently consulting members about the measure, but Lai was unable to provide a timeline for implementation.
On retirement protection, Lai calls on members to be more aware of their retirement financial planning, especially those who are looking to withdraw all their money in one go. “We want to remind members to stay alert as they can be an easy target for scammers,” he warns.
Currently, each investment choice comprises 29 to 32 sub-funds, including US, Japan and Taiwan equities, global high dividend equities, and exchange-traded funds.
Lai says the fund and its consulting firm Capital Investment Trust Corp review the performance of the sub-funds biannually to screen out underperformers. He adds that there is no plan to increase the number of sub-funds.
As of May 2023, the aggressive choice registered a cumulative return of 60.68%. The cumulative returns for the steady growth fund and conservative fund were 57.93% and 14.85%, respectively.
The Private School Fund had around NT$72.2 billion (US$2.26 billion) of assets under management as of July 2023.
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