The Committee notes with thanks the tremendous efforts made by the Financial Supervisory Commission (FSC) in adjusting the calculation method of sales incentives from gross sales-based to AUM-based. The FSC’s hard work in exploring this matter and discussing it with the Bankers Association, Trust Association, Securities Investment Trust & Consulting Association, banks and asset managers is highly appreciated and recognized by industry participants. This new measure is an important milestone and in line with global practice. The Committee believes the change will create a joint win for investors, asset management companies, and sales agents; conflicts of interest can be greatly reduced as investors’ interests will be placed first, and the turnover rate of funds will be decreased, which will improve the performance of funds.
In addition, the Committee looks forward to cooperating with the FSC in growing the onshore fund business through the relaxation of relevant regulations, especially the lifting of investment restrictions on onshore products, so as to build a better regulatory framework for Taiwan’s asset management industry. This would increase the competitiveness and operational flexibility of onshore products and assure a level playing field for onshore and offshore funds.
The Committee also urges the FSC to work closely with the Ministry of Labor on implementation of a Self-Choice Labor Pension Scheme, as it is critical to every worker’s retirement arrangement and would partially solve current difficulties with the Labor Pension Fund resulting from the aging population and insufficient retirement preparation. The Committee very much hopes to see the government form a taskforce and outline a timetable for implementing the Self-Choice Labor Pension Scheme in the near future.
As always, the Committee strongly encourages the FSC to keep pace with changes in the market environment to enable Taiwan’s asset management industry to continue to best serve the interests of investors.
Suggestion 1: Implement a member-choice labor pension scheme as soon as possible.
Under the current labor retirement plan, all employees are subject to an identical portfolio and return model. There is no opportunity for customization based on the individual’s actual needs and risk profiles so that employees may choose either to invest aggressively in hopes of gaining higher returns for their retirement income or conservatively to minimize risks. The current pension scheme fails to consider various factors that might cause individuals to select different types of investment plans – factors such as the employee’s amount of contribution, retirement age, level of risk tolerance, and preferred investment management vehicle. As a result, employees lack control over their investment risks and returns, which is inconsistent with the purpose of a “defined contribution” plan.
The FSC appears to support the idea of transforming the current retirement scheme into a “member-choice defined contribution plan” similar to those implemented in such advanced economies as the United States (401K), Australia (Superannuation), Hong Kong (MPF), and Singapore (CPF). But decision-making authority on this issue rests with the Ministry of Labor (MOL). We urge the MOL’s Bureau of Labor Funds to develop and announce a specific timetable and general planning guidelines for the discussion of the policy planning, so that international asset managers may contribute their experience and provide support as needed to help shape public consensus. Employees should be able to choose a retirement plan based on their individual needs and risk appetite – either to stay in the current scheme where the pension fund is managed by the government with a minimum guaranteed earning or to select appropriate investment objects through a member-choice platform according to their risk appetite. Considering the continuing low interest-rate environment, the rapid aging of Taiwan’s population, and the need for employees to be able to choose from among diverse retirement plans, the Committee strongly encourages the MOL to expedite the process for setting a specific timeline for implementation of a member-choice labor pension scheme.