Taiwan’s move to extend the mandatory retirement age is a “crucial” step to address financial deficits in the retirement system, according to the Pension Fund Association (PFA).
Lawmakers in Taiwan passed an amendment to the law on July 15 that allows employees to stay beyond the mandatory retirement age of 65 through negotiations with employers, in a move to encourage older people to work for longer.
Like in many other nations, policymakers in Taiwan are grappling with the problems of a rapidly ageing population that will put pressure on depleting financial resources.
Extending the retirement age will give employers and employees greater flexibility and help alleviate the problem of the fast-ageing population by letting employees stay in the workforce for longer, according to Francine Wu, chairperson of the PFA.
“The extension of the working age beyond 65 is a crucial measure to address the financial sustainability of labour insurance,” Wu says in an interview with Asia Asset Management.
Labour insurance, the first pillar of Taiwan’s pension system, provides fundamental benefits to Taiwanese, such as old-age and maternity benefits.
Earlier this year, the Bureau of Labor Insurance estimated that without pension reforms, the labour insurance fund will become bankrupt as early as 2028 with a shortfall of NT$126.7 billion (US$3.88 billion).
According to Wu, a higher retirement age can benefit the labour insurance fund and also the labour pension fund, the defined-contribution second pension pillar, by postponing payouts and bolstering workforce participation. She says delaying payouts can relieve some of the immediate financial pressure on the labour insurance system.
“The extension [of the retirement age] can help alleviate the financial deficit of labour insurance by balancing the inflow and outflow of the funds,” she says. “It increases the working-age population, reduces the dependency ratio, and enhances the sustainability of the pension system.”
She believes the government should go further on reforming the second pension pillar, and also the third pillar which covers commercial pension products issued by financial institutions.
She suggests tax breaks that will spur employers and employees to contribute more to pension plans, and to allow pension plans to offer a wider range of investment options to cater to different risk appetites and retirement timelines.