Civil Service Pension Design: Defined Benefit, Defined Contribution or Hybrid?
Yu-Ying Kuo, Chilik Yu, Hsin-Fang Tsai
Abstract
In order to achieve fiscal sustainability, Taiwan reformed its civil service pension system in 2017 by reducing income replacement rate, eliminating beneficial interest payment, delaying pensionable age, and increasing contribution rate. Currently the system is still operating based on the defined benefit scheme and adds the possibility of job transfer by combining working years. Nonetheless, to meet the requirement of the reform, for new members joining the civil service starting in 2023, a new pension system has to be designed. The choice of appropriate pension scheme is an urgent issue for the current pension system in Taiwan.
The research was conducted to understand whether the new civil service pension system should adopt the scheme of defined benefit, defined contribution or hybrid. With the aid of Public Service Pension Fund Management Board, 10,000 online questionnaires were distributed and 8,275 were collected with the valid rate of 82.8%. The findings showed that most civil servants tend to select current defined benefit pension plan no matter how the system changes. For the new pension system, the hybrid system wins more acceptance than defined contribution. The civil servants with short working years prefer defined contribution. The study offers current public servants’ thoughts for future pension design and suggests that stakeholder management has to be improved for effective communication and smooth change.
Keywords: defined benefit, defined contribution, hybrid system, pension reform