The following article contains spoilers from "Two Birds, One Throne: Finale" from Batman #127, on sale now.
The mystery of the Penguin's death has finally been solved within the pages of "Two Birds, One Throne: Finale" from Batman #127 (by Chip Zdarsky, Belen Ortega, Luis Guerrerro, Clayton Cowles). However, while the Penguin is indeed confirmed to have faked his death, his new life away from crime raises some important questions about the relationship Batman has with his villains, as well as what it would truly take to rid Gotham City of its villains.
Contrary to orchestrating some grand scheme to ruin Batman, the Penguin only wanted to retreat from his life of crime. He has grown tired of the constant struggle against Batman, comparing his repeated comebacks to an addiction he needs to kick if he ever wants to be happy. The thing is, it seems to be working. The Penguin is living a normal, law-abiding life without hurting anyone. If he can do this, other villains from Gotham could, as well. However, this would come with its own risks and blur the lines of morality -- and it may not be very effective at all.
First, it's important to examine how the Penguin feels about his old life. His explanation that he only kept going back to Gotham to rub it in Batman's face added some new depths to his perspective. In his mind, every time Batman toppled his empire, it was like a fascist was grinding a boot into the Penguin's neck, so he just had to keep coming back to rub it in Batman's face. It's easy to see how the Penguin would justify it as such, but it is the latter part of his answer that is intriguing. He only came back to rub it in Batman's face. It implies that, had Batman not been a factor in any of this, the Penguin would have let his life of crime go.
It also suggests that many of Gotham's villains only return because Batman is still there. The temptation to get revenge on him is just too great to resist. Hence, why Penguin referred to it as an addiction. Batman's very presence is like a flame for moths, drawing them all in to ruin Gotham. On the other hand, this could also just be an excuse. Out of all of Gotham's rogues, he is arguably the sanest of them. It would be simple for him to try and justify it as revenge and have the readers believe him, but not all of Gotham's villains are motivated by Batman's presence. Some of them barely have coherent reasons for doing anything at all.
Then there is the moral quandary of Catwoman's decision to let him go. She deemed him not to be a significant threat anymore, but that doesn't make it right to let him live a life of peace after all the damage he caused. The Penguin has done some unspeakable things over the course of his criminal career. It can't be fair to let him live a peaceful life in a flower shop even if it guarantees he would never be a threat to Gotham again. There is also the question of whether it would work for other villains. As stated earlier, most of them aren't as sane as the Penguin is, and would likely not adapt well to a normal life. So, this solution may only work for him, and even then there are so many moral reasons to deny him this satisfaction.
Finally, there is the reality of Gotham's nature as a lightning rod for crime. Even in the Penguin's absence, someone new has surely risen to take his place. Time will only tell if his children are worse than he is, and in all likelihood they are. So, perhaps it would have been best to deny Penguin his new life after all and keep him trapped within the life he built for himself out of spite.