Labor insurance is an important source of income for retirees, but the government program faces bankruptcy by 2026.
Three years ago, the Ministry of Labor proposed an amendment to the Labor Insurance Act (勞工保險條例), clearly stating that the government must allocate NT$20 billion (US$670.26 million) to the fund every year.
Minister of Labor Hsu Ming-chun (許銘春) last month said that if pension reform were reopened, she would propose increased allocation.
Faced with a financing crisis, the government is apparently mulling a new normal that institutes constant fund allocations.
That is no different from how floods were controlled in the past: Building levees along the coastline is effective in the short run, but floods eventually overcome the levees. Flood prevention requires ways to redirect floodwater, and it is important to recognize that the situation today is different from before.
First, there are structural problems. Life expectancy in Taiwan has increased. The population is aging as the birthrate is falling, and the amount of people over 65 is growing.
In 2018, five young people shared the cost of caring for one elderly person. This year, the number was 4.4, and by 2040, two people will have to share the cost of caring for one elderly person.
As the dependence ratio increases, so does the burden on society, especially on younger generations, to a point where the system becomes unsustainable.
Management wizard Peter Drucker said in The Next Society, his 2001 special report for British weekly The Economist, that aging populations will bring Earth-shattering changes to society and major transformation of labor markets.
Second, institutional dynamics are diminished. The labor insurance has existed for 70 years. There was a labor insurance fund deficit for the first time in 2018. As the number of people receiving labor insurance pensions increases, the deficit expands.
The fund’s hundreds of billions of New Taiwan dollars might look like an astronomical figure, but the surplus is expected to go into free fall and the fund to be depleted by 2026. This is just the beginning.
Third, as an effect of the wealth gap and the ongoing COVID-19 pandemic, workers’ wages are increasingly unstable.
Globalization has created an investment environment beneficial to wealthy businesspeople, but for the working public, it is a low-wage nightmare that widens the wealth gap and creates two separate worlds.
Income inequality will continue to grow, an issue that lies at the center of general elections in every nation.
As millennials in the US, already feeling the pressure of student loan dept, joined the workforce, they encountered a financial crisis and a shrinking job market.
The next generation will perhaps be named the “COVID-19 generation.” Recent graduates might be struggling for a long time as stable work might be hard to find, while the US-China trade war and the effects of the pandemic cause wages to be increasingly unstable.
Reforms require a consistent logic over generations, which means that labor insurance reform draft measures — accelerating premium increases, lowering payouts, extending the salary basis for calculating payouts to 15 years, and so on — are closely interconnected.
A resolution to the financial problem must be found by establishing interrelated automatic adjustment mechanisms within the framework of the overall institutional objective.
James Lin is a fellow at the Society of Actuaries in the US.
Translated by Perry Svensson
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