Two Taiwanese academics cite my work, but leave me scratching my head:
Rather than relying on the Bismarck model for basic old-age income security, we need to adopt the Beveridge principle of a uniform single rate. The National Pension protection should be extended to all people, forming the first tier of protection (Willmore, 2006; 2007). The low income living allowance for the elderly should be abolished and replaced with a pure means test. On the one hand, a means test will ensure that scarce resources are not misallocated to individuals and families with adequate resources of their own. On the other, it also will ensure that the truly needy receive sufficient support to prevent them from falling into poverty. All citizens are entitled to a basic level of old age income security, and the State needs to be the guarantor of this civil right.
Chih-lung Huang and Carl Shrsyung Chang, “Rethinking Old Age Income Security for All in Taiwan”, paper sponsored by the National Science Council (NSC 98-2410-H-214-019-MY2), 2010, p. 22.
The authors are concerned that the pension system in Taiwan fails to prevent poverty in old age. The current first tier pension (“low-income Old Age Allowance”) is means-tested. They want to abolish this, and replace it with ….. another means-tested age benefit, to be called “Supplementary old-age income”.
I don’t understand how this would change the system. In any case, what I advocate is movement to universal flat pensions, not movement to a “pure” means test. Professors Huang and Chang cite my publications, but not my ideas. Three British academics, in contrast, convey my message concisely and precisely:
Larry Willmore, of the International Institute for Applied Systems Analysis (IIASA) in Austria, argues against means-testing pensions; rather, he supports giving smaller pensions to all the elderly instead of larger pensions to the poorest, on both political and practical grounds. First, such programs are politically attractive because they provide a guarantee of a basic income for all voters’ old age, and for that of their parents and friends. Starting with a modest universal pension, the pressure from voters is to increase the size of the pension, as has happened in New Zealand and Mauritius. “Means tests promise fiscal savings, but tightly targeted benefits lack political appeal, so a means-tested benefit runs the risk of becoming smaller and smaller relative to wages and per capita GDP,” Willmore warns. The second argument for avoiding means tests is that they send the wrong signals to workers. They discourage low-income workers from saving for their old age and from continuing to work, even on a part-time basis, beyond normal retirement age.
Joseph Hanlon, Armando Barrientos and David Hulme, Just Give Money to the Poor (Kumarian Press, Sterling, VA, USA, 2010), p. 107.
In Taiwan, the message seems to have been lost in translation.
To add to my confusion, the US Social Security Administration publication, Social Security Programs Throughout the World states: “The social insurance system involves a flat-rate benefit for citizens under the national pension program and earnings-related benefits under the labor insurance program.” The national pension is financed in part from a flat-rate payroll tax, and provides a minimum benefit of NT$3,000 per month and a maximum benefit equal to 0.65% of the minimum wage multiplied by the number of years of contributions plus NT$3,000 or 1.3% of monthly insured amount multiplied by the number of years of contributions, whichever is greater. Benefits are indexed to the consumer price index (CPI). “Citizens age 65 and older who have been residents of Taiwan for more than 6 months a year for the last 3 years” are eligible for benefits. Contributions seem not to be required for eligibility, nor is there any mention of a means test, but those with a contribution history are eligible for a larger pension.
I learned more from a few pages of the SSA than I did from the 32-page paper of Professors Huang and Chang. But is the information correct? Does Taiwan have a universal minimum pension, or does it have a minimum pension tested against all income, and possibly against assets as well?
The minimum pension, in any event, seems much too low to lift anyone out of poverty. The minimum pension in 2008 was NT$3,000 a month, only 17% of the minimum monthly wage of NT$17,280.
