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EDITORIAL:
Mismanaging the nation’s pensions
News that the Labor Insurance Fund and the Civil Servant Insurance Pension Fund
may go bankrupt has prompted public concern and fears that people will have no
support in their old age. These concerns have been compounded by the news that
Sam Hsieh (謝青良), former vice president of ING Securities and Investment Trust
Co, was accused of embezzling money from the Labor Insurance Fund and Labor
Pension Fund. Now, there are reports that money has been lost on investments in
Giga Solar Materials Corp, making the managerial problems of these funds a topic
of great public anxiety.
Huge retirement funds are not left sitting idle in a bank account and many
countries invest in them in the expectation that their value will increase. This
is all well and good, and has gained public approval. There are also legal
restrictions and guarantees in place to avoid massive losses being incurred.
Those responsible for fund management fear two scenarios more than anything
else: First, a greedy fund manager lacking moral scruples who sees the job as an
opportunity to enrich himself, racking up massive losses along the way. For
example, Hsieh lost NT$220 million (US$7.56 million) of government funds.
The other scenario is an inept manager who incurs losses as a result of bad
investments, as happened with Giga Solar. In 2009 and 2010, six investment
companies handling pension fund investments performed worse than the benchmark
TAIEX, resulting in losses of more than NT$8.9 billion by late last year.
It is not very strange then, that legislators criticizing this performance said
results would have been better if they had decided which companies to invest in
by simply throwing darts. Unfortunately, the nation is now saddled with both
these scenarios because the government entrusted the wrong people with the funds
and failed in its duty to monitor them.
In order to improve management of all funds, the Council of Labor Affairs (CLA)
will next year set up a labor fund operations bureau with oversight of funds
estimated at NT$2 trillion. The bureau will manage the Labor Pension Fund, the
Labor Insurance Fund, the Employment Insurance Fund, the Wage Arrears Repayment
Fund, the Employment Stabilization Fund and the Special Work Hazard Labor
Protection Fund.
The bureau will be a third-level agency under the jurisdiction of the future
labor ministry, to be created next year to replace the CLA. There are some
issues with this proposal.
First, because the bureau will rank low in the government hierarchy, there are
strong concerns as to its abilities to resist pressure from higher-up government
officials, legislators and other institutions to use its funds to shore up the
stock market.
Second, the bureau will only be allocated a little more than 100 staff, about 60
percent of whom will be administrative staff. It is doubtful whether the
remaining staff will be made up of experienced financial management and legal
specialists capable of managing funds totaling NT$2 trillion.
Third, there are also great concerns as to whether the bureau will be able to
effectively monitor the institutions entrusted with investing these funds.
The CLA has said that if there are concerns over the bureau’s expertise, the
fund could be managed by the Ministry of Finance. However, there are no
guarantees that the ministry’s handling will be any more effective.
To better manage such a large fund, the government should elevate the level of
the bureau and establish a committee directly under the Cabinet consisting of
representatives from the CLA, the Financial Supervisory Commission, labor
institutions, military personnel, civil servants and public school teachers,
academics and experts, and have it monitor the fund’s independence,
transparency, safety and stability.
To take good care of the public’s retirement funds, the committee should
publicize results on a regular basis, eliminate inappropriate government
interference and handle any irregularities as soon as they appear.
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