From the 2019 world population review, Taiwan ranks in first place for the lowest fertility rate with only 1.2 new born per woman. With minimum new hires joining in the labour market, and as the fastest ageing location amongst Asia, Taiwan’s Labour Insurance Fund is already facing the challenge of bankruptcy. Many of the working population will not be able to receive any retirement benefit by 2026. Are we ready for retirement?
Continue reading the article above to learn more.
We Are Getting Old Fast
It is not new news that Taiwan is one of the fastest ageing countries in the world. From the latest forecast released by the National Development Council (國發會) in 2018, the total population for those who are older than age 65 will reach to 3.6 million this year, which represents 15% of our total population and Taiwan is expected to officially hit 20% by 2025, which means 1 out of 5 of the total population will be a senior citizen.
With an unbalanced proportion of population, many policies become difficult to execute due to the lack of young replacements. The Taiwanese Government passed a new bill in mid-2018 on cutting back the pension benefit for military personnel, civil servants and teachers to ease the tension on pension funding; and although it is a difficult decision to make, we believe some further kinds of reform in the pension system is necessary in the coming years.
Problems We Face After We Retire
With the evolution in medical technology and the healthcare system, expectations have increased of living much longer than before. We are facing a longer period of retirement that requires both physical and financial support, which can only be prepared for whilst we are still productive. Here in Taiwan, we point out three key problems that almost everyone needs to deal with when thinking about retirement (see Figure 1).
Medical Expenses Are Getting Higher
From the latest data released by the Ministry of Health and Welfare (衛福部), the average medical expense per person was NT$45,318 (USD 1,4601) in 2017. Compared with NT$33,748 (USD 1,087) in 2007, the average expense grew 134% over the past 10 years to 2017.
Similar evidence also showed in our Aon 2019 Global Medical Trends report. With an ageing population and poor lifestyle habits, medical trend rates continue to grow over general inflation with an average net medical trend rate over the year of 4.9% globally and 5.8% for APAC. The growing medical expenditure over inflation has increased the pressures on saving more for old-age given higher medical expenditures now and also to plan for in the future.
Minimum Knowledge on Financing for Retiring
The Organisation for Economic Co-operation and Development (OECD) has been monitoring financial education and financial literacy since 2002 and Taiwan is a way behind. The first country wide survey conducted by the Financial Supervisory Commission was held in 2008 and found an average score of 53.9 (out of 100) for Taiwanese citizens aged above 15. The Government has been devoted on building correct financial habits as well as increasing relevant knowledge ever since. With multiple relevant policies taking place and different types of communications being pushed out by local government, the effects are still limited.
From the most recent survey on retirement readiness index led by Global View Monthly and Schroders, Taiwan only scored 4.2 out of 102, which is even lower the global average of 5.9. Insufficient knowledge on how to invest and lack of confidence are the two main reasons that produce such a low score. People know they should invest for their retirement but don’t know how to and don’t have a courage to do it.
Not Enough Savings to Cover Life In Retirement
To reach a 70% replacement ratio is typically the recommended target for people who are thinking of retirement. However, it appears that we are far behind.
With an online calculation tool designed by the Ministry of Labour 3, we have tested (below) several scenarios among different ages and wages and the results are shown in Table 1.
With the longest accumulation period (longest time until retirement), an employee at age 20 with a 6% mandatory contribution rate can only reach a 16.83% replacement ratio (which is the highest
among the different age scenarios shown). With a cap of NT$150,000 (USD 4,832) on the monthly contribution, the situation will only get worse as one’s earnings increase.
Usually when we talk about the 3 pillars of each person’s pension funding, they are funding from government, funding from employer, and funding from individual financing. The undesirable medical trend and insufficient funding issues from both our social welfare system and personal savings have toughen the conditions for foreseeable retirement.
Our government has had many of the policies and legislation passed through for enhancing the quality of elderly life given this is a widely known problem. A government organized investing online platform “FundRich” has recently held an event focusing on retirement saving which might link to the 6% LPA contribution for enhancing our low replacement rate issued addressed earlier.
As the second pillar of retirement support, employers can put this within their people strategy when thinking of how to improve employees’ overall wellbeing as well as the company’s longterm talent management. As an individual, we need to be more prepared and focus on our health as well as our financial wellbeing to be on track towards a secure and healthy retirement.
1 Exchange rate from Central Bank of Republic of China (Taiwan). Retrieved July 17, 2019 from the Web: https://www.cbc.gov.tw/lp.asp?ctNode=799&CtUnit=308&BaseDSD=32&mp=20
2 Global View Monthly, 2018. https://www.gvm.com.tw/article.html?id=45342
3 Ministry of Labour, https://calc.mol.gov.tw/trial/personal_account_frame.asp
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