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Cablegate: Legislation of Taiwan's Social Security System

VZCZCXRO1719
RR RUEHGH
DE RUEHIN #1666/01 2060759
ZNR UUUUU ZZH
R 250759Z JUL 07
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 6132
RUEATRS/DEPT OF TREASURY WASHDC
INFO RUCPDOC/USDOC WASHDC
RUEHBK/AMEMBASSY BANGKOK 3777
RUEHBJ/AMEMBASSY BEIJING 7057
RUEHUL/AMEMBASSY SEOUL 8788
RUEHGP/AMEMBASSY SINGAPORE 6955
RUEHKO/AMEMBASSY TOKYO 8945
RUEHML/AMEMBASSY MANILA 0113
RUEHJA/AMEMBASSY JAKARTA 4109
RUEHKL/AMEMBASSY KUALA LUMPUR 3789
RUEHHI/AMEMBASSY HANOI 3360
RUEHBY/AMEMBASSY CANBERRA 4570
RUEHWL/AMEMBASSY WELLINGTON 1845
RUEHHK/AMCONSUL HONG KONG 8304
RUEHGH/AMCONSUL SHANGHAI 1248
RUEHGZ/AMCONSUL GUANGZHOU 0425

UNCLAS SECTION 01 OF 02 TAIPEI 001666

SIPDIS

SIPDIS

STATE PLEASE PASS USTR
STATE FOR EAP/RSP/TC, EAP/EP
USTR FOR ALTBACH and Stratford
USDOC FOR 3132/USFCS/OIO/EAP
TREASURY FOR OASIA/TTYANG
TREASURY ALSO PASS TO FEDERAL RESERVE/BOARD OF
GOVERNORS, AND SAN FRANCISCO FRB/TERESA CURRAN AND NY FRB MARIA
BOLIS

E.O. 12958: N/A
TAGS: EINV EFIN ECON PINR SOCI TW
SUBJECT: Legislation of Taiwan's Social Security System

SUMMARY
-------

1. In July, Taiwan completed the last piece of legislation for its
social security system. With the legislation, all Taiwan residents
will be covered by one of the social welfare-oriented pension
programs. The annual cost of the legislation is estimated at NT$100
billion (US$3 billion). With other welfare programs for elderly
people to be phased out, the new national annuity system is expected
to reduce the financial burden on taxpayers and Taiwan authorities
in the future. END SUMMARY.

National Annuity Law
--------------------

2. In July, the Legislative Yuan (LY) completed the third and final
reading of the National Annuity Law (NAL), which will be effective
on October 1, 2008. The new law is designed to protect 3.53 million
Taiwan residents not yet covered by other insurance and social
welfare programs, including 2.8 million jobless women, primarily
housewives.

Consolidation
-------------

3. Currently, social insurance is available under military
servicemen, civil service employee, farmer, and labor insurance
programs. Under existing social welfare programs, monthly pensions
are NT$6,000 (US$182) for every farmer aged above 65, NT$4,000
(US$121) for every disabled resident, NT$3,000 (US$91) for every
poor non-farm people aged above 65, and NT$3,000 for every
aboriginal aged above 55. All of the social insurance and social
welfare programs will be consolidated into a single national annuity
system in the future, according to the July 2007 legislation.

Coverage
--------

4. The July 2007 legislation requires Taiwan residents aged between
25 - 65 and not yet covered by existing programs to participate in
the national annuity system. In other words, the NAL is designed to
cover the 3.53 million Taiwan residents not already included in
existing programs, including 2.8 million jobless women, primarily
housewives.

Premium
-------

5. The monthly premium will be NT$1,123 (U5$34) or 6.5% of the
monthly minimum wage (NT$17,280). The government will pay 40% of
the monthly premium, and insured residents will pay the remaining
60% or NT$674 (US$20). The government will subsidize the poor and
disabled. The monthly premium will increase by 0.5 percentage
points every two years until it reaches 12% of the minimum wage.

Pension
-------

6. Under the national annuity system, insured people aged over 65
are entitled to a minimum monthly pension of NT$3,000 (US$91). The
maximum monthly pension will be NT$8,986 (US$272) if the length of
insurance exceeds 40 years.

7. The monthly pension will be available for disabled residents
with no job capacity regardless of whether or not the recipient has
reached the age of 65. Their minimum monthly pension will be
NT$4,000 (US$121), and their maximum monthly pension will be

TAIPEI 00001666 002 OF 002


NT$8,986. The family of an insured person will be entitled to a
payment of NT$86,400 (US$2,618) for the death of an insured person.

Financing
---------

8. According to the Ministry of the Interior, the annual funding
requirement for the national annuity system is estimated at NT$100
billion (US$30 billion) for the first 15 years, and over 60% of the
cost will be financed with the funds for existing social welfare
programs. The gap will be filled by lottery profits and premium
revenue.

Expectations
------------

9. Both government officials and social welfare groups are happy
that the NAL will help protect those in Taiwan who are jobless or
disabled. Vice Chairman Thomas Yeh of the Council for Economic
Planning and Development (CEPD) said that the NAL's pension will
provide basic subsistence for all of Taiwan's elderly.

COMMENT
-------

10. Although the annual cost will reach NT$100 billion, the new
national annuity system will prevent politicians from using specific
social welfare programs to woo voters during elections. Under the
new program, farmers under 65 will get a monthly annuity, while
those over 65 are eligible for a NT$6,000 monthly payment, but no
annuity. Several other welfare programs for elderly residents will
be merged into the national annuity system, and will, therefore,
reduce the burden on taxpayers and the government in future.

YOUNG

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