The upper limit for the insured salary levels in the labor insurance system has not changed for almost 10 years, but now there are plans to raise the limit from NT$43,900 to NT$45,800. It is estimated that 2.13 million workers will benefit from the change. Although most people approve of the adjustment and agree that it is an effective way to insure workers, the proximity to next month’s presidential and legislative elections raises questions.
Over the past few years, many labor unions have lobbied the government to raise the ceiling for insured salaries and legislators from both the pan-blue and pan-green camps have submitted proposals to review the issue. However, the Ministry of Labor has adamantly refused, claiming financial difficulties, and even President Ma Ying-jeou (馬英九) has said that raising the ceiling could pose “moral risks.” The sudden policy U-turn clearly points in a political direction.
The insured salary levels should be adjusted in step with socioeconomic change, so that the fee base adheres closer to real salaries. In addition, a characteristic of social insurance systems is that insurance levels and payment standards are linked. When insurance levels are adjusted upward, the economic security of workers with higher salaries increases. The consumer price index has increased 10.6 percent over the past 10 years and the bottom end of insured salaries has been adjusted upward following the six increases in basic salary. Last year, average industrial and service industry salaries reached NT$47,300, which highlights the need to raise the ceiling.
However, the Labor Insurance Act (勞工保險條例) authorizes the ministry to determine the insured salary levels for labor insurance, but does not index-regulate the levels and does not define the timing of adjustments, thus giving the authorities a great deal of discretion. As the direction of pension system reform remains undetermined and as the Jan. 16 elections approach, any rash adjustment would set off speculation as to who would benefit most from the changes. It seems that an assessment of the feasibility of including an automatic adjustment mechanism in the law is required to implement periodical adjustments based on an index formula. This would avoid political interference and employers would be able to get a good grasp of changes to their costs. This would be the best way to promote long-term stability.
In addition, unilaterally raising the insurance levels might bring immediate political rewards, but it could also bring controversy and potential financial crises.
First, 10 percent of the labor insurance premiums are provided by the government, which means that after the ceiling has been removed, high-income earners will receive higher subsidies, which goes against the principle of income distribution, affecting social fairness. Second, pension payments are calculated by multiplying insured salaries by a payment ratio. That ratio is the same for all incomes, so the redistribution effect is lost. Third, raising the upper limit of the insurance would increase revenue for the Labor Insurance Fund in the short term, but in the long term, it could increase the financial shortfall and thus shake trust in the pension system among future generations.
A gradual approach to pension reform can be adopted, but the premise for that is that a comprehensive blueprint is drawn up and the direction of pension finance reform is determined in order to lay the foundation for a systematic adjustment procedure, which could also include dialogue with various groups.
What must be avoided is fragmentary adjustments focusing on short-term benefits. The insured salary levels affect payment levels, social fairness, financial health and inter-generational justice, and must be considered together with long-term premium planning, the level of suitable payments, staggered payment ratios, retirement age, the number of months that should be taken into account when calculating the average monthly insured salary on which payments are based, as well as disputes over the operations of labor insurance retirement payments.
Adjustments to the insured salary levels are just one link in overall pension reform. Without accepting this, an even deeper hole will be left for the next generation.
Liou You-syue is a doctoral student in the Department of Social Welfare at National Chung Cheng University. Edward Wu is president of the Social Welfare Association of Taiwan. Cheng Ching-hsia is an associate professor in the Department of Social Welfare at National Chung Cheng University.
Translated by Perry Svensson
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