Building a High-Quality Environment for an Aging Society:An Interview with CEPD Chairman Hu Sheng-cheng

Three years ago, economist Hu Sheng-cheng, an academician at the Academia Sinica, was appointed to the Executive Yuan as a minister without portfolio. In May of this year he was appointed chairman of the Council for Economic Planning and Development (CEPD). At a time when Taiwan's population is aging rapidly, Hu is responsible for improving daycare provision, relaxing labor laws, and developing the care-giving industry to improve the life of all working people in Taiwan.

Q: Taiwan is well on the way to becoming a society of old people. Given that the birthrate is falling at the same time, many people worry about the aging of the labor force. What measures is the CEPD taking to deal with this situation?

A: To increase the birthrate we have to remove the objective barriers to women's having children. People can't afford to raise children because of the high cost of daycare and school fees. Pregnancy also affects women's careers.

But there have already been some big changes. For instance, the Gender Equality in Employment Law that was passed two years ago requires businesses with 250 or more employees to provide a nursery, and some have made arrangements with child-care centers in their neighborhoods, making it easier for parents to drop off and pick up their kids on the way to and from work. But companies should also be allowed to hire part-time workers to share the workload of those taking parenting leave.

Q: What impact will the aging of the population have on Taiwan's industry at all levels?

A: There are already more people working in the service industry than in the manufacturing and high-tech industries. We hope that this trend will continue. Banking and insurance, advertising, healthcare services, the beauty and fitness industry, and the travel and leisure industry are all high value service industries that can employ older people.

Newly rising service industries also create job opportunities. The trouble is that these days many service industries, such as gas stations, department stores and domestic help and homecare services, need part-time manpower, but the Labor Standards Law (LSL) focuses on full-time workers and fails to protect part-time workers. Perhaps we ought to recommend that some part-time employees be covered by the LSL, because this would hopefully accommodate seniors who need to be reemployed.

Q: During a symposium on population aging organized by the CEPD, some scholars suggested raising the retirement age. How can this be done?

A: During this period of economic transformation the retirement age needs to be lowered over the short term, but in the long run it will have to be raised.

Before the concept of lifelong learning gained a foothold, most people used to have a single professional skill. When companies suddenly went under or an industry changed direction, the labor market could not keep up. This resulted in structural unemployment and a situation in which many employees were forced to or volunteered to take early retirement.

Taiwan's population has been gradually getting older for quite some time. When people live longer because of better health, the working age limit and the retirement age can be raised. For now, this is just a tentative proposal. We have not decided anything yet.

In the 1980s, it was estimated that by 2030 the US social security system would be insolvent. To prevent this, it was suggested at the time that the retirement age be raised, but it wasn't until the year 2000 that this was actually done.

Q: How many levels should an ideal retirement system have?

A: In the West, the first level is the government provision of a national pension and labor insurance system, the second level comprises company pension funds, and the third level is personal savings. In the first two levels, the income replacement ratio (the percentage of income to be replaced in retirement) is approximately 60-70%.

According to the LSL, Taiwanese enterprises have to provide their employees with a pension plan. Under the old labor standards regulations, an employee could apply for a retirement pension only if he or she had worked in the same company for 25 years. But the average length of employment in most small- and medium-sized businesses is 13 years, which meant that 90% didn't qualify for a pension. Although workers had Labor Insurance, it was restricted to those who had worked for five years, while people who had worked less than five years were not eligible. Women often leave the labor market while they are pregnant or have to take care of their families. It is estimated that a third of the labor force was not covered by Labor Insurance. The draft National Annuity Act we submitted to the Legislative Yuan in 2002 is meant to provide for people outside the labor market. If it is passed, everyone will be covered.

Q: Many people worry that as the population ages, a huge number of people will go into retirement and the government will not be able to pay for this. How does the government plan to meet this challenge?

A: An important principle of financial planning is to assure taxpayers who pay their contributions that they will definitely get their money upon retirement. Financial openness and transparency are imperative.

The United States was the first country to adopt a "pay-as-you-go" system. The social security contributions collected from the labor force are paid to the retired population. Contributors consider that they are building up their own savings, when in fact they are paying for other people's social security. If there aren't enough young people in the labor force when the baby boomers retire en masse, social security expenditure may one day exceed income. To avoid this, in 1980 the US began to progressively increase social security contributions and raise the retirement age. Income above a certain threshold in addition to a pension may also be deducted. Since Taiwan's labor insurance system faces similar problems today, we can learn from the American experience. l