The government’s contribution to the Labor Insurance Fund is expected to reach NT$267 billion (US$8.24 billion) next year, but the fund is still in danger of going bankrupt.
According to the latest actuarial report on the fund, if pension reforms are not implemented, the fund would go bankrupt in 2028, with the shortfall for that year reaching NT$126.7 billion.
This prospect will be a major issue facing president-elect William Lai (賴清德) after he takes office.
The difficulties faced by the Labor Insurance Fund did not appear overnight. The main causes, which have accumulated over time, include the aging structure of Taiwan’s population, which has led to a decrease in the working population and an increase in the retired population, which in turn causes an imbalance between the revenue and expenditure of the Labor Insurance Fund.
To solve the difficulties facing the Labor Insurance Fund, unless there is an unexpected turnaround in this demographic trend, we would inevitably face some combination of three options, “paying more, receiving less and retiring later.”
“Paying more” means adjusting the insurance premium rate. To avoid a situation in which the Labor Insurance Fund has no money to pay out, if the direction of reforms is to raise the premium rate year by year, it is estimated that for the fund to be able to go on paying workers’ pensions by the year 2068, the premium rate would have to be raised to 37.5 percent, but how many people could accept this?
Moreover, employers currently pay the largest share of their employees’ premiums, so any such adjustment to the premium rate would be sure to face a lot of obstacles from businesses.
“Receiving less” means cutting pension payments, but as things stand, 1 million people who receive old-age pension payments from the Labor Insurance Fund are paid less than NT$20,000 per month.
On average, they only receive a little over NT$18,000, which is just NT$2,000 to NT$4,000 more than the minimum cost of living in areas other than Taipei. It is probably not enough to cover anything above the basic cost of living. For this reason, experts say that “receiving less” is the least feasible way of reforming the Labor Insurance Fund.
As for the current plan to adjust the statutory pension age, the age at which workers become eligible to draw their pensions, to a maximum of 65 years. If the government wants to implement any further delay of retirement, it would have to confront and resolve the concerns raised by labor organizations.
All in all, no matter which method and what kind of reforms the government chooses to adopt, any such change would have a negative impact on some people’s rights and interests.
However, policy reforms that are beneficial to society generally involve short-term pain for long-term gain. Let us hope that the government would have sufficient foresight to adopt such pain-for-gain policies, especially when it comes to pension reform.
The government must be willing to take a step in the direction of reform, even if it is just a small step. Whatever it does, it cannot just sit there and do nothing.
The government should gather feedback from various sectors by organizing public hearings, seminars and so on, but it is no good acting like a headless chicken, collecting opinions from various sectors with no clear purpose in mind.
The prospect of the Labor Insurance Fund going bankrupt is a clear and present danger. Whether Lai can successfully push ahead with reforming the Labor Insurance Fund would be a test of his political wisdom and his skill in social communication.
Dino Wei is an engineer.
Translated by Julian Clegg
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