Taiwan’s Ministry of Labour aims to submit rules to lawmakers for the country's planned employee choice scheme (ECS) within two months, with a view to launching it next year, says Jennifer Wang, deputy chair of the Financial Supervisory Commission (FSC).
The ECS is connected to the Labour Pension Fund (new scheme), Taiwan's largest retirement fund with assets under management of NT$1.99 trillion ($65 billlion).
The scheme will launch in two phases, says Wang, a convener of the workforce set up last year by the FSC and the Ministry of Labour to work on the ECS regulations. It will start with the 6% voluntary contribution made by employees, and the second phase will bring in the 6% compulsory employer contribution once the scheme has become “more mature”, she tells AsianInvestor.
So far, 330,000 of the country's 5.83 million working population has made the 6% voluntary contribution to their account.
Like other Asian governments, Taiwan is trying to encourage more pension saving. Wang says the regulator wants to encourage workers to make the 6% tax-free individual contribution, adding that the platform will provide retirement-focused products. “We will select the qualified issuers and products for them.”
Under the plan, the platform will select fund managers, based on criteria including risk management, AUM, history, track record and product offering. “We will evaluate different factors and select a few qualified issuers which have excellent reputation and products,” notes Wang.
Pension products should be tailor-made for the programme, she says, adding that existing mutual funds will not qualify.
The fees charged by fund managers will be a crucial factor to encourage employees to join the scheme, notes Wang. “The fees for products have to be lower than for mutual funds and commercial insurance products.”
She says the replacement ratio – the percentage of pre-retirement income needed in retirement – is around 46% for the labour insurance fund. Wang hopes to increase this to more than 70% by introducing the ECS, including contributions made by both employer and employee.
Under the ECS, Taiwan is following other markets in the region – such as Australia, Hong Kong and Singapore – to provide employees with greater choice with regard to their pension investments