The government-run Labor Insurance Fund is worth approximately NT$500 billion (US$16.7 billion), yet according to recent reports it also has NT$6.3 trillion in hidden debt. If this continues, it has been predicted that it will go bust by 2031. This is very worrying news for workers.
It is not my intention to discuss the accuracy of actuarial reports here. Instead, I would like to offer readers some pointers on how we should view the labor insurance crisis.
Will the Labor Insurance Fund go bust in the foreseeable future? Probably not. Our leaders are not idiots. Labor insurance is a form of social insurance.
Nine million workers are involved and their rights and the duty of government are enshrined in the law.
There could be some extreme ramifications if it were to go bankrupt.
However, the government would implement a variety of cost-saving measures to delay or prevent such a crisis long before it ever reaches that point.
The most likely approach would be to increase labor insurance premiums and the legal retirement age.
It would also most probably need to introduce cuts in labor insurance expenditure and borrow money to offset the debt in order to postpone any crisis.
From a strictly actuarial point of view, it is only a matter of time before the Labor Insurance Fund; pensions for the military, civil servants and teachers; and the National Pension are in danger of bankruptcy.
This is because the political promises that have been made are currently economically unsustainable.
There are differences: pensions for the military, civil servants and teachers are covered by a clause obliging the government to pay and the Ministry of Finance is legally responsible for monitoring and covering any hidden debts in the national pensions system. However, the Labor Insurance Fund has no similar guarantees.
The EU sovereign debt crisis has forced the nations of Portugal, Ireland, Italy, Greece and Spain to implement austerity drives in an effort to tackle their debt.
In these countries, the public is becoming increasingly incensed by massive golden handshakes for retiring executives. They are experiencing more strikes, riots and plunging trust in politicians for their perceived short-termism. There is also anger over the disparity in welfare between the public and private sectors.
If the government fails to address the inherent problems in our pensions system, we will be heading for a sovereign debt crisis of our own, complete with the austerity packages and social conflict that many European countries are now facing.
The government will not be able to fulfill its political pledges on pensions as it is not in a position to repay its various debts.
There will need to be changes made to the Labor Insurance Fund in the future. It is only a case of how much and when.
Political leaders are often guilty of short-termism. Too often, governments are content to sweep debt under the carpet for future governments to deal with, or ignore the problem until they are faced with a full-blown debt crisis. It is regrettable, but this is how it is.
So how should workers respond to this Labor Insurance Fund crisis? Minister of Culture Lung Ying-tai (龍應台) recently commented that “you shouldn’t put too much trust in governments, nor should you rely on them,” and there is much to be learned from the European sovereign debt crisis. That being said, there is no need for workers to worry that their labor insurance pensions will just vanish into thin air.