If Taiwan’s Labor Insurance Fund (LIF) goes bankrupt, should the government be the guarantor of last resort for the labor retirement pensions? People have different views on the issue. Based on my work experience as an actuary in the US, I would like to offer a few clarifications and references for system reform and integration.
An aging population is a global problem, and growing old and retiring is an inevitability we all face. The issue is complex and involves long-term planning, so it is necessary to build a national social insurance pension system.
The Old-Age, Survivors and Disability Insurance (OASDI) program of the US Social Security system is such a product. The OASDI offers basic guarantees for a life in retirement for the whole public within the social security framework. Anyone with a job income contributes to the program, including military personnel, civil servants, school teachers and workers, based on the principle of financial self-sufficiency.
Moreover, the program is designed with an income redistribution function to ensure a minimum standard of living. It is similar to the right to education or conscription in that it applies equally to every citizen across the nation.
Under this system, each of the more than 300 million US citizens is assigned an account number, and there is no difference made based on status. During a person’s employment, employers are legally required to make contributions to the same pool. Each enterprise and state government can also provide additional pension plans offering greater benefits.
Taiwan, with its 23 million people, has a different system. Different working populations have built different systems at different times. Military personnel have military insurance, civil servants and public school teachers have civil servant insurance and workers have labor insurance, while the unemployed rely on the National Pension Insurance. In addtion, there is the Farmer Health Insurance and other kinds of insurance. Such programs do not redistribute income, and they use different formulas for calculating contributions and payment conditions. For example, some civil servants and public school teachers enjoy an 18 percent preferential interest rate on their pensions.
The law also states that the government must guarantee these payments, but there is no such legal protection for the national, labor and farmer insurance programs.
The Ministry of Finance has said that given the government’s current financial difficulties, the LIF is a social insurance and as such should be financially self-sufficient, adding that the government guarantees pensions for civil servants and public school teachers simply because it is their employer. This concept is completely wrong. The different social insurance programs for these groups should be based on the same legal foundation. With a single social insurance, there should be only one retirement pension system, and it should be managed by the government. The only difference between the accounts should be the size of contributions and payments.
Basic living standards should be protected for the public as a whole. Advanced countries have only one social insurance system. Although different employers make contributions to this single system, they do so under the same social insurance system and following the same rules.
However, social insurance has been divided into military personnel, civil servant, public school teacher, worker, farmer, national and other insurance programs.
Since the government guarantees the pensions for government employees, does that makes this insurance for the privileged classes?
Again, the government has emphasized that it is doing so just because it is their employer. Such “technical statements” from our fiscal authorities make no sense, because they violate public values and the spirit of social insurance.
On Oct. 23, Premier Sean Chen promised that the government would amend the law to build a sound labor insurance system, and that it would be the guarantor of last resort for the labor pension. This is a step in the right direction.
Whether the problem was caused by past government officials wanting to benefit themselves or is a result of design flaws, the different insurance programs might go into bankruptcy one after another over the next 15 years. Without reform, the government employee and laborer insurance programs will have no future. Some portray the former as expensive “beef noodles” and the latter as cheap “plain noodles.”
However, none of us will have anything to eat by that time. Co-existence and mutual prosperity are crucial to Taiwan. Any distortion and abuse of social resources must not last for too long.
Now, it is time to integrate the different social insurance programs into one system that offers income redistribution.
James Lin is an actuary.
Translated By Eddy Chang