The Labor Insurance Fund should last three years longer than previously expected, but the future of the program remains challenging, a report released yesterday showed.
The report on a key source of funding for Taiwan’s main basic pension program, released every three years, said that the NT$1.1 trillion (US$33.57 billion) it had as of the end of November last year would be used up by 2031, three years later than projected in the previous report, but hidden liabilities continue to surge.
Revenues from premiums already fall short of benefits paid out, but many factors would help keep the fund solvent in the near future, Department of Labor Insurance Director Chen Mei-nu (陳美女) said.
Photo: Lee Ching-hui, Taipei Times
Among them were an increase in the number of insured people to 10.1 million, a higher salary basis on which premiums are paid and a premium rate that recently rose to 11.5 percent, she said.
Those factors would increase revenue from premiums by NT$280 billion from last year to 2031, she said.
That estimate assumed a higher rate of return on the fund’s investments of 4.5 percent, which was increased from 4 percent in the previous report because of an actual return rate of 7.5 percent from 2019 to 2023, Chen said.
However, the gains might not be enough to sustain the health of the program, she said.
Workers are required to pay labor insurance premiums based on how much they earn, up to an insured salary of NT$45,800. The premiums cover insurance for occupational hazards, but also support basic retirement pensions for workers other than civil servants, teachers and military personnel, who have their own labor insurance system.
With the nation’s population rapidly aging, benefits have exceeded premium revenues for the past eight years.
Last year, that deficit in the first 11 months of the year totaled NT$60.6 billion, but a government subsidy of NT$130 billion and investment returns of NT$159.5 billion more than covered that shortfall.
However, the report projected that the program would have negative cash flow starting next year as the deficit increased to NT$120 billion, forcing the Department of Labor Insurance to draw from the Labor Insurance Fund.
The worry is that eventually the fund would run out of money and people reliant on labor insurance pension benefits would face deep cuts to their benefits, the report said.
The fund’s hidden liabilities have risen to NT$13.23 trillion, from the previously projected NT$10.29 trillion, because of Taiwan’s changing demographics and more people taking annuities rather than lump-sum retirement payments, it said.
One way to improve the system’s finances would be to increase the salary cap on which premiums are paid to higher than NT$45,800, Chen said.
However, that would also mean higher payouts as the benefit formula is tied to that salary number, she added.
Among the solutions she suggested was for people to work longer to continue contributing labor insurance premiums and for the fund’s investment portfolio to be more diversified to improve investment returns.
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