臺大管理論叢 NTU Management Review VOL.29 NO.2

163 NTU Management Review Vol. 29 No. 2 Aug. 2019 Financial Effects and Intergenerational Inequity of Pension Reform in Taiwan 1. Introduction The pension system in Taiwan faces various challenges caused by rapid aging of the population and severe underfunding of pensions. These underfunding problems come from low contribution rates and insufficient investment return of government pension funds. The deficit of pension funds may affect government budgeting and public financing, and lead to a lack of domestic investment. Therefore, in this critical situation, the most crucial policy for the government is to rebuild a solid pension system. Among the structural challenges of pension reform is Taiwan’s aging population. The National Research Council (2012) indicates that the most severe effects of an aging society are the increase of public finance expenditures and decrease of the labor population. In contrast to other developed countries in Europe and North America, which have at least 50 years to adjust their pension systems after these countries become aging societies, Taiwan has less than 25 years to adjust. Taiwan was an “aged society” in 2018, and will be a “superaged society” in 2025 according to population forecasting. It implies the labor population in Taiwan will rapidly shrink, and the retired population will soar. That is, expenditure on pension payment will exponentially increase in the coming years. Moreover, the birth rate in Taiwan is insufficient to maintain the demographic structure, and it accelerates the trend of the decreasing labor population. Therefore, previous experiences from other countries may not fit Taiwan’s case, and authorities must consider a multifactor approach to reform policies. Our study examines three crucial aspects, including inconsistent pension benefits between occupations, intergenerational inequity, and unsustainability of pension funding. These aspects have significant financial effects on pension reform in Taiwan. We also examine the financial sustainability of pension systems. The results indicate that intergenerational inequity has a stronger financial effect on the pension system than Jennifer L. Wang , Department of Risk Management and Insurance, National Chengchi University Hong-Chih Huang , Department of Risk Management and Insurance, National Chengchi University Yen-Chih Chen , The Bachelor’s Degree Program in Financial Engineering and Actuarial Science, College of Finance, Feng Chia University Mark, Hui-Heng Cheng , Department of Risk Management and Insurance, National Chengchi University