UPDATE 1-Taiwan cuts 18 pct interest in civil service pension reform

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TAIPEI, June 27 (Reuters) - Taiwan’s legislature passed a bill reforming pensions for civil servants on Tuesday, eliminating 18 percent annual interest on savings, starting in 2018, as the population ages.

Passage of the bill fulfils a campaign promise of President Tsai Ing-wen and is projected to delay the possibility of a default in payments to retirees by a decade.

Instead of 18 percent, pensions will receive nine percent from July 2018 until the end of 2020, and then be reduced to zero starting in 2021.

The legislation also raises the retirement eligibility age to 65 starting in 2026, eliminating current options for civil servants to take earlier retirement.

The bill only covers civil servants. Additional legislation reforming the pension system for teachers and the military will be reviewed later.

“This is a very important step for Taiwan’s (pension) reform process,” said Wang Min-sheng, a spokesman for the ruling Democratic Progressive Party.

“Its intent is to allow the government to take care of every generation, while allowing retirees to have a high level of security and quality of life in their retirement.”

But the plan has angered public servants, many of whom say it will ruin their retirement plans. Thousands of military personnel, teachers, police and civil servants have protested against the plan several times.

Pension reform is critical for Taiwan as large payouts are no longer sustainable for the export-reliant economy, with contributions crimped by slower economic growth and a rapidly aging population.

Pensions for civil servants could default by 2030, teachers by 2031, and other workers by 2048, government data shows, if the system is not reformed. (Reporting by Faith Hung; Editing by Nick Macfie)