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

Financial Effects and Intergenerational Inequity of Pension Reform in Taiwan 164 inconsistent pension benefits between occupations. As a solution, we suggest that the government should quickly implement pension reform policies to resolve intergenerational inequity and establish a sustainable pension system through a multifactor approach. 2. Research Model To compare different pension systems, we employ replacement rate criteria. We measure the intergenerational cost and benefit relationship in each pension system with the money’s worth ratio. We also adopt the same assumption in each pension system’s actuarial report to compute the underfunded liability. Our approach differs from that of previous studies because we considered not only the retirement benefits but also the cost from a different pension system. 2.1 Replacement Rate The replacement rate approach is a common criterion used for pension system comparison. Horlick (1988) introduced the replacement rate to compare different countries’ social welfare systems. Pensions at a Glance 2015 from OECD (2015) lso utilizes this approach to examine pension schemes around the world. The replacement rate can examine the welfare of different schemes and eliminate misleading effects. To determine the differences between occupations and generations in the pension system, the replacement rate approach is more suitable than the absolute benefit approach. For different occupations i , we define the replacement rate as R i (t, T, Ŵ) , where t is the date an employee starts to work, T is the date the employee retires, and Ŵ is the employee’s wage in different periods. We obtain the following equation: R i (t, T, Ŵ) = R i (t, T, Ŵ) W T–1 , (1) where R i (t, T, Ŵ) is the monthly benefit of occupation I , and W T–1 is the previous month’s wage of the employee. If the system provides only a lump-sum benefit, we transform it into a monthly benefit based on life expectancy.