# Labor Pension System (勞工退休金制度)

Taiwan operates **two parallel pension systems** for workers covered by the LSA. Which system applies to a given employee determines how retirement funds accumulate and how severance interacts with pension obligations.

---

## Two Systems at a Glance

| | 舊制 (Old System) | 新制 (New System) |
|---|---|---|
| Governing law | LSA Art. 53–58 | Labor Pension Act (勞工退休金條例, LPA) |
| Effective | Before July 1, 2005 | July 1, 2005 onward |
| Account type | Employer's pooled reserve fund | Individual portable account (個人帳戶) |
| Employer contribution | 2–15% of payroll to company reserve | ≥ 6% of monthly wages per worker |
| Portability | None — loses accrual on job change | Follows worker to every employer |
| Retirement trigger | Age 55 + 15 years at **same employer**, or 25 years at same employer | Age 60 + contributed ≥ 15 years |
| Benefit form | Lump sum from employer | Monthly annuity or lump sum from Labor Insurance Bureau |

**Default for new hires since July 1, 2005:** New system only.

**Workers employed before July 1, 2005** had a one-time, irrevocable choice: stay on 舊制 or switch to 新制. Seniority under 舊制 was frozen at the switch date.

---

## New System (新制) — Mechanics

### Employer Contribution

```
Monthly contribution = monthly wages × contribution rate (≥ 6%)
```

- Wages subject to contribution: regular wages including fixed allowances. Does not include sporadic bonuses or reimbursements.
- Contribution rate minimum is 6%. Employers may contribute more; any excess above 6% is taxable income for the employer but does not create additional worker entitlement beyond what is specified.
- **Due date**: contribution must be deposited to the Bureau of Labor Funds (勞動部勞動基金運用局) by the last day of the following month.

**Worked example:**

> Employee monthly base salary: NT$45,000  
> Employer must contribute: NT$45,000 × 6% = **NT$2,700/month**  
> Annual employer contribution: NT$2,700 × 12 = **NT$32,400**

### Worker Voluntary Contribution

- Workers may voluntarily contribute up to **6% of their own wages** to the same individual account.
- Voluntary contributions are **exempt from individual income tax** (deducted before taxable income, up to the 6% ceiling).

**Worked example:**

> Same employee, chooses to contribute 3% voluntarily:  
> NT$45,000 × 3% = NT$1,350/month tax-deductible  
> Annual tax savings (assuming 12% bracket): NT$1,350 × 12 × 12% = **NT$1,944/year**

### Investment & Guaranteed Return

- Funds are managed by the Bureau of Labor Funds in pooled investment portfolios.
- **Guaranteed floor**: each year, the account must earn at minimum the 2-year fixed deposit rate announced by the Directorate-General of Budget, Accounting and Statistics (主計總處). If actual investment return falls below this floor, the government makes up the difference.
- Workers can check account balances at the Labor Insurance Bureau portal (勞保局).

### Retirement Payout

| Condition | Payout form |
|-----------|------------|
| Age ≥ 60, contributed ≥ 15 years | **Choice** of monthly annuity or lump sum |
| Age ≥ 60, contributed < 15 years | Lump sum only |
| Disability (unable to work permanently) | Lump sum regardless of age |
| Death | Lump sum paid to statutory heirs |

Monthly annuity rate is calculated against the account balance using actuarial tables published by the Labor Insurance Bureau (adjusted periodically).

---

## Old System (舊制) — Key Rules for Transitional Cases

### Retirement Trigger

An employee qualifies for **employer-paid** 舊制 retirement if:
1. Age ≥ 55 AND ≥ 15 years of service at the **same employer**, OR
2. ≥ 25 years of service at the same employer (no age minimum), OR
3. Age ≥ 60 AND ≥ 10 years of service

"Same employer" is strict — transfers within a corporate group do NOT automatically chain seniority unless the labor contract explicitly carries it over.

### 舊制 Severance Formula

```
Benefit = monthly average wage × units of service

Units:
  First 15 years of service: 2 units per year
  Year 16 onward: 1 unit per year
  Maximum total: 45 units
```

**Worked example:**

> Employee with 20 years of 舊制 service, average monthly wage NT$60,000:
>
> First 15 years: 15 × 2 = 30 units  
> Years 16–20: 5 × 1 = 5 units  
> Total: 35 units  
>
> Benefit = NT$60,000 × 35 = **NT$2,100,000**

"Monthly average wage" (平均工資) = total wages paid in the 6 months before the retirement/termination event ÷ 6.

### Reserve Fund Obligation

Under 舊制, employers must maintain a **Labor Retirement Reserve Fund** (勞工退休準備金) at a dedicated bank account under the Labor Insurance Bureau:
- Contribution range: 2–15% of monthly payroll
- Rate is set by the employer but must be sufficient to cover projected 舊制 liabilities
- Failure to maintain adequate reserves is an LSA violation (Art. 56)

---

## Transition Cases: Employee with Split Seniority

Workers who switched from 舊制 to 新制 in or after 2005 have **two seniority segments**:

```
Segment A: 舊制 seniority (frozen at switch date) — employer's liability
Segment B: 新制 seniority (from switch date onward) — individual account
```

When such an employee terminates or retires, both segments must be settled:

1. **Segment A (舊制)**: employer pays 舊制 severance calculated on frozen years of service × average wage at termination (NOT at the switch date — the wage is always current).
2. **Segment B (新制)**: worker accesses individual account through Labor Insurance Bureau.

**Common mistake**: using the wage at the time of the switch rather than the termination wage to calculate Segment A. The formula always uses current average wage.

**Worked example:**

> Employee switched to 新制 in July 2005 after 8 years of 舊制 service.  
> Terminates in 2025 after another 20 years (新制).  
> Average monthly wage at termination: NT$80,000.
>
> Segment A (舊制): 8 years × 2 units = 16 units  
> 舊制 payment = NT$80,000 × 16 = **NT$1,280,000** (employer pays)
>
> Segment B (新制): 20 years of individual account accumulation  
> → Worker withdraws from Labor Insurance Bureau account (employer already discharged this via monthly contributions)

---

## Severance vs. Pension: Critical Distinction

The SKILL.md states that severance under the new system is **0.5 months' average wage per year** — this refers to LSA Art. 17 severance (資遣費), which is a **separate obligation** from the pension contribution.

| | Source | When triggered | Who pays |
|---|---|---|---|
| 新制 pension | LPA Art. 14 | Ongoing, monthly | Employer (to individual account) |
| Severance (新制) | LSA Art. 17 | Art. 11 termination by employer | Employer (direct cash payment) |
| 舊制 retirement benefit | LSA Art. 55 | Qualifying retirement | Employer (from reserve fund) |

These can be owed **simultaneously**. Example: employer terminates an employee with split seniority under Art. 11 →

- Owes 舊制 severance for pre-2005 years (LSA Art. 17 old calc **or** Art. 55 if qualifying retirement, whichever applies)
- Owes 新制 severance (0.5 months × post-2005 years) via LSA Art. 17
- New system pension account is already held by worker (employer's contribution obligation was ongoing)

---

## Decision Tree: Which Obligation Applies?

```
Employee terminated or retired?
│
├─ Hired entirely after July 1, 2005?
│   └─ New system only:
│       • Pay 新制 severance if Art. 11 termination (0.5 mo × years)
│       • Pension account already belongs to worker
│
├─ Hired before July 1, 2005 AND switched to 新制?
│   └─ Split seniority:
│       • Calculate 舊制 benefit on pre-switch years (wages at TODAY)
│       • Pay 新制 severance on post-switch years if Art. 11 termination
│       • New system account already belongs to worker
│
└─ Hired before July 1, 2005 AND stayed on 舊制?
    └─ 舊制 only:
        • Meets retirement conditions? → pay 舊制 lump sum
        • Terminated (not qualifying retirement)? → pay 舊制 severance
          = 0.5 months × years under LSA Art. 17 (NOT Art. 55 formula)
```

Note: LSA Art. 17 severance (0.5 mo/year) and LSA Art. 55 retirement benefit use **different formulas**. Art. 55 (retirement lump sum) is more generous (2 units/year for first 15 years). An employee who meets Art. 55 retirement conditions cannot be denied the Art. 55 benefit by framing the separation as "termination."

---

## Contribution Deadline & Penalty

| Event | Deadline | Penalty |
|-------|----------|---------|
| Monthly contribution | Last day of following month | 2× contribution amount (LPA Art. 53) |
| Late registration of new hire | Within 7 days of hire | Fine NT$10,000–NT$50,000 |
| Failure to contribute | Per month outstanding | Additional 5% interest on arrears |

Employees may file complaints directly with the local labor authority. Inspectors can access payroll records and contribution histories.

---

## Gotchas Specific to Pension

- **Part-time workers are covered**: LPA covers all workers under the LSA, including part-time. Contribution base uses the actual wage paid, not a full-time equivalent.
- **Probationary employees**: There is no probation exemption — contributions begin from day one of employment.
- **Wage base vs. contribution base**: The contribution base is capped at NT$150,000/month (as of 2024). Wages above this cap still use NT$150,000 for calculating the 6% contribution.
- **Voluntary contributions are irrevocable per month**: Once a worker elects a voluntary contribution percentage, it applies until they formally change the election. Workers can change election once per year.
- **舊制 reserve fund shortfall is employer's personal liability**: If the reserve fund is insufficient when 舊制 benefits become due, the employer (including responsible directors) is personally liable for the gap. The fund is not the legal ceiling of the obligation.
- **Cross-border portability**: Foreign nationals on work permits are covered by LPA on the same terms as ROC citizens. Non-ROC nationals who permanently leave Taiwan can apply for early lump-sum withdrawal of their new system account balance.