When the actuarial report on the Labor Insurance Fund in October stated that the labor fund’s hidden debt stood at NT$7.3 trillion (US$252 billion) and it was likely to go bankrupt by 2027, it caught the nation’s attention.
In November last year, President Ma Ying-jeou (馬英九) instructed the Cabinet and the Examination Yuan to review possible reform to the pension system for public employees and salaried workers in order to reduce the deficit, unfairness between industries and inter-generational injustices.
The financial crisis in the pension system has resulted from paying in too little, payouts that are too high and payments that are made too early in people’s lives. The way to improve this situation is for people to pay in more, receive less and receive payments later in life. Consideration must be given to how serious the problem actually is and how it is to be dealt with.
Analysts show that salaried workers retiring under the labor insurance pension system currently receive more than NT$1 million if they take their pension as a lump sum, and more than NT$2 million if they take it as an annuity based on the currency value at the time of retirement.
However, the interest on the insurance premiums paid during a person’s working life is based on the interest rate on two years fixed savings deposits and amounts to around NT$400,000, based on currency value at the time of retirement. Someone retiring under the old labor insurance pension system and choosing to receive a one time lump sum will receive more than NT$2 for every dollar paid into the system, while someone retiring under the new system will receive more than NT$5 for every dollar paid.
Such a high return on investment cannot be maintained in a society with a low birth rate, where the elderly dependency ratio is increasing and where salaries are almost stagnant. Insurance finances will deteriorate rapidly.
The solution is to gradually adjust the labor insurance fee upwards, lower the income substitution rate, calculate payments based on the lifetime average of the proportion of monthly salary that go toward insurance and delay the retirement age to 65.
What is needed is a clear analysis of the financial status and future prospects for different insurances, wide dissemination of the results and also a step by step timetable for reform.
On Dec. 22 last year, Control Yuan member Shen Mei-chen (沈美真) suggested in an article in the Chinese-language United Daily News that years worked in different professions should be added together. Currently, if a person has been insured for 14 years under Labor Insurance and 13 years under Government Employee insurance, they do not qualify to receive a pension. This is unfair and not conducive to mobility between the government and private sectors.
The official response to this problem is that each insurance requires different insurance fees, offering different payments and making integration difficult.
If we want payment calculations to be based on status prior to retirement and the combined total of years worked under different insurance systems, problems will arise. However, these could be addressed by adopting the method already in place in the Labor Insurance and the National Pension Insurance Fund — combining the years served under both systems, but calculating payments separately for each system