An Estimation Model for Evaluating the Impact of Changing Officers' Minimum Time in Grade and Maximum Time in Service on Officers' Future Pension Payment

Abstract

To avoid failure of the current servicemen pension fund system, the Ministry of Defense intends to increase the service time required for retirement. However, how long should the service time be extended? Could this extended service time improve the financial situation of the pension fund system? Until now there has not been a model which can be used to evaluate the impact of this change on the future payment of the officers’ pension. The current study referred to Alam's (1985) steady state career structure model, and considered the wastage rates of each grade to construct a Modified Steady State Career Structure Model (MSSCSM). Combining the MSSCSM with manpower costs of each grade, a human resource financial model, i.e. an Estimation Model for Military Officers Future Pension Payment (EMMOFPP), was established. By using the MSSCSM, we can evaluate policies with different time in grade for promotion, and service time for retirement. The policies’ results were then inputted into the EMMOFPP to estimate the impact of these policies on the future pension payment for new retired officers every year. In addition, according to the theoretical models of this study, we can also understand whether the newly designed manpower policies that vary each grade’s minimum time for promotion, maximum time for retirement, established numbers, and retention strategies are feasible under financial constraint and how much financial resource is needed to implement these manpower policies. Meanwhile, based on the current study’s theoretical models, we can design different retirement payment policies to understand how future pension payment for officers may be affected. The current study proposed that the maximum service time of retirement for major to colonel should be extended 4 years, and 2 years for major general. Minimum time for promotion of second lieutenant and captain should be extended 1 year. The results indicated that the extensions of service time for retirement in Field Grades and Major General, and the extensions of time in grade for promotion in Company Grades will increase most ranks’ promotion prospects. For example, the promotion prospect of major to lieutenant colonel increased from 52.8% to 55.9%, and of lieutenant colonel to colonel from 46% to 50.3%. However, the future payment of the officers’ retirement pension has not been reduced. In contrast, it has been theorized to increase 0.29%.