Taiwan’s pension fund for private schools plans to introduce a full life cycle fund as the fifth investment option, a move aimed at bolstering retirement protection for members.
The new option is expected to be launched next year, Lai Jin-Nan, executive secretary of the Supervisory Committee Managing Retirement, Compensation, Resignation and Severance Matters for Private School Teachers, which supervises the Private School Fund, says in an interview with Asia Asset Management in Taipei.
The Private School Fund is a defined-contribution pension plan for 51,000 teachers and staff of private schools. It was the first in Taiwan to introduce a member choice platform in 2013, initially starting with conservative, steady growth and aggressive options.
A target-date fund option was added four years later. It allocates more to the conservative option as members near the retirement age of 65.
Members can continue to keep their retirement savings with the Private School Fund even after retiring so that they can earn additional returns. But they must decide on their post-retirement investment option before retiring. This must be done even if they don’t change their existing option.
“This mechanism [having to choose the post-retirement option before retiring] cannot maximise the investment return, particularly for those who choose the target date [fund option],” Lai says. “Most of their contributions are placed in the conservative option close to retirement.” This, he explains, can undermine returns.
The full life cycle fund will function like a new version of the target-date fund. It’s designed with a longer portfolio allocation cycle or glide path. This means a member accumulates returns over a longer period than if they were to withdraw the money at age 65.
Lai says the new fund can be customised based on specific needs of members.
A trustee bank will be hired as a gatekeeper to safeguard retirement savings.
“It’s easy for retirees who wish to withdraw pension funds in a lump sum to fall victim to telephone scams,” Lai says. “The trustee bank will verify the purpose of large withdrawals when retirees access significant amounts from their retirement accounts.”