Taiwan private teachers' pension to widen choice

The country's first employee retirement scheme – already the first to offer portfolio choice – will allow its members to select individual products by September.
Taiwan private teachers' pension to widen choice

Taiwan’s NT$25 billion private teachers’ pension fund will allow members on its employee choice platform to pick individual investment products as opposed to simply selecting one of three types of portfolio – aggressive, balanced or conservative.

The option will be available by September on the platform, which launched in January last year as the first in the country to allow portfolio choice. Some argue that teachers on the platform will more actively manage their accounts as time goes by.

Under the scheme, members take a risk-assessment test, which categorises them as having aggressive, balanced or conservative risk tolerance. Those in the first two categories must bear their own investment risk, while conservative investors will enjoy a guaranteed return at the equivalent of the two-year deposit rate.

Each of the three investment portfolios is constructed from some 10-20 investment products, including mutual funds and deposits, pre-chosen by an investment board comprised of teachers. From September investors will be able to choose the individual funds.

Members can switch their profile each month, but currently teachers are not very actively involved in managing their account, says Lai Jin-Nan, executive secretary of the Supervisory Committee Managing Retirement, Compensation, Registration and Severance (SCMRC).

At present, 95% of members are categorised as conservative, while 2.5% of members have switched to the aggressive portfolio and 2.5% to balanced. Lai says 50% of the 62,120 beneficiaries did not return their risk assessment test, so are defined as conservative.

“We do not see clear correlation between the education background of the members and their choice,” says Jerry Shaw, head of corporate trusts at CTBC Bank, the trust bank for the private teacher pension fund. “Some finance teachers also remain their choice as conservative.”

He adds that the self-choice plan has only been implemented for one year and the sample size is not yet significant.

Lai suggests teachers will grow more active in participating in the employee choice scheme, now that school staff insurance is now paid monthly rather than as a lump sum (this was effective from the start of this year). Teachers will be more eager to allocate to risky assets if their daily expenses can be covered by the insurance, he argues.

The fund will consider expanding the range beyond three portfolio choices, says Lai, but the number will be capped at five. “The teachers may not know how to make their choice if there are too many offerings. Some teachers do not have the sense of wealth management; they do not all have financial backgrounds.”

Return is one of the biggest concerns for teachers when they choose their portfolio. For conservative, balanced and aggressive, the annualised returns (since the teachers’ employee choice platform launched in January last year) as of February were 1.2%, 7.3% and 1.4%, respectively.

The SCMRC fund was established on January 1, 2010 as a defined contribution scheme for private school teachers and staff.

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