CLA to allow private managers to manage labor pension fund

By Alfred Lee, The China Post

Chen Chu, chairman of the Council of Labor Affairs (CLA), said yesterday the CLA would authorize professional asset management and investment trust companies to manage a proportion of the labor pension fund in order to enhance management efficiency. The chairman said that as of the end of May the labor pension fund totaled NT$238.5 billion, of which NT$121.8 billion was deposited in local banks as time deposits, NT$62.4 billion was extended to public or government enterprises as loans, NT$61.7 billion was in stocks and mutual funds, and NT$2.6 billion was in short-term bills.

Because the interest rates of time deposits are too low now, Chen said, the CLA has been planning to assign a certain proportion of the labor pension fund to investment trust firms in order to make the best use of the capital in the long-term. Currently about 25 percent of the labor pension fund is tied up in time deposits. According to government regulations, a maximum of 30 percent of the labor pension fund can be invested in the local stock market. The CLA plans to assign 5 percent of the total fund or NT$12 billion to investment trust companies in the near future. Chen further pointed out that the current maximum of 30 percent of the fund allowed to be invested in the stock market was too conservative compared with the guidelines of other countries. As the 30 percent restriction is eased in the near future, the CLA will consider making stock investments in foreign countries to dilute risks and maximize financial leverage.

In September, the labor pension fund audit committee will hold meetings to discuss the exact amount of funds which would be appropriate for investing in foreign countries.

Chen also disclosed that the CLA has been debating the “personal pension account” system. Under the system the employer will set aside 6 percent of an employee’s base salary per month to deposit in the employee’s personal pension account so that the employee can benefit from the fund. Currently only 4 percent of the country’s 600,000 retirees can enjoy the labor retirement pension because an employee is only entitled after working for the same enterprise for more than 25 years or, for those over 55, after 15 years. Considering that the average life span of a small or medium enterprise is 13 years, this means that very few people meet the requirements of the retirement pension fund.

Once the personal pension account system is passed into law, the pension fund will grow faster and become larger. The CLA hopes that the personal pension fund system can be passed into law during this year’s Legislature Yuan’s session so that personal pension funds can be put under the more profitable and professional management of asset management companies.

A CLA official said that trillions in personal pension funds would be available in a few years.

The pension fund of the nation’s public servants, teachers, and servicemen totaled NT$146.32 billion as of June this year. The fund with its capital gains from investments in government bonds, treasure bonds, short-term bills, mutual funds, and stocks totaled NT$184.74 billion, according to Wu Rong-ming, minister of Civil Service.

When the fund was set aside in 1995, the total amount was only NT$10 billion, Wu said. Wu said that the Civil Service Ministry also favors the practice of assigning investment trust firms to manage the pension fund for public servants, teachers, and servicemen.