Taiwan short-sighted on pensions

By Ho Yen-tang 何燕堂  / 

Sun, Oct 28, 2012 - Page 8

There has been much debate recently concerning the looming bankruptcy of the Labor Insurance Fund (LIF). The Council for Labor Affairs has made five proposals to address this crisis, including increasing insurance contributions, reducing the payment rate, adjusting the base for calculating average insurance salary and for the fund income and having the government act as guarantor of last resort. With the exception of the last proposal, none of these address the main issue. The problem with the LIF is that it is a system in which the poor prop up the poor.

Given the declining birth rate, falling salaries, the rise of the new poor — those in poorly paid employment — and the aging population, less money is being paid into the system. It is hardly surprising, then, that the LIF is facing bankruptcy. The LIF’s problems are structural, so simply adjusting contributions, payments and average insurance salaries will do little to improve the situation. Legislators from both the governing party and the opposition have targeted retired military personnel, public school teachers and public servants, but this is just casting around for scapegoats and sweeping the more serious issue of unfair distribution of wealth under the carpet.

While the LIF is intended as social insurance, it is not fit for this purpose. Social insurance is essentially about providing mutual support within a society, where the “haves” help the “have-nots,” and where the wealthy support the less well-off, through the equitable redistribution of wealth.

However, under the current capitalist system, distribution of wealth is unfair in the extreme. An excessive amount of the wealth that economic growth has generated in Taiwan over the past several decades has been concentrated in the hands of a few. Social insurance is supposed to mitigate this through the redistribution of such wealth.

People who have been employed have made a significant contribution to the wealth of society as a whole, so society as a whole should take responsibility for looking after them in their retirement. However, under the current LIF system, the previous generation of workers are being supported by those who are currently employed. In other words, the less well-off are expected to support the less well-off. This is not the equitable redistribution of wealth.

In Taiwan, social insurance is predominantly determined by the nature of one’s employment, according to whether one is, for example, a laborer, or works in the agriculture and fisheries industry, or whether one is military personnel, a public school teacher, or a public servant. Consequently, the way people are treated within the insurance system depends on the nature of their employment. While there is nothing wrong with this arrangement as such, there is another aspect to it. There exists a basic pension, called the National Pension Fund, financed by the state’s tax revenue. This pension is available to everyone in Taiwan with Republic of China (ROC) nationality. The trouble is, another distinction based upon one’s employment status has been introduced to the national pension, without the implications being fully explained. That is, those with a job pay into the LIF, those who do not have a job pay into the national insurance fund. Thus, the National Pension Fund has turned into a system in which people currently not in employment are paying to support the previous generation of people who did not have a job. Again, the less well-off are expected to support the less well-off.

People like Hon Hai Group chairman Terry Gou (郭台銘), Formosa Plastics Group chairman William Wong (王文淵) and Taiwan Semiconductor Manufacturing Co CEO Morris Chang (張忠謀) do not have any worries about their pensions, and neither do military personnel, public school teachers or public servants, who enjoy a considerable and comprehensive retirement package as state employees. The only people who have to worry about their pensions are private workers. Therefore, the crisis over the impending bankruptcy of the LIF is not just a question of whether the labor insurance system in its current form is sustainable, it is a matter of how much workers need to worry about how they are going to cope in their retirement.

Assurances by Premier Sean Chen that the government “takes ultimate responsibility” for state pensions is encouraging, but note that he qualifies this with: “if we cannot find a solution to the labor insurance issue having exhausted all other avenues.” By “other avenues” he is presumably referring to increasing contributions, reducing payments and adjusting the base for calculating average insurance salary. In other words, trying to solve the LIF bankruptcy crisis by taking more in revenue and handing out less in return, which means eating into the pensions of people contributing to the fund today.

The government needs to take responsibility for more than being a guarantor of last resort: It needs to create the circumstances in which people working today can retire safe in the knowledge that they will be taken care of. If the system is to be reformed, it should be to move from a position where the poor support the poor to one in which everyone in society supports each other. Targeting military personnel, public school teachers and public servants, or talking of preventing the previous generation from taking from the current generation’s pension contributions, misses the point.

One way to deal with this is to establish a compulsory national pension fund and to calculate contributions based upon total household income. Another possibility would be to keep the current labor insurance system, based on the nature of an individual’s employment, but to change the National Pension Fund to be a pension fund for all citizens, financed by government tax revenue. Then Taiwan would have a system capable of redistributing wealth properly. This would be the way to solve the problem of workers’ pensions.

Ho Yen-tang is a sponsor of Raging Citizens Act Now.

Translated by Paul Cooper