Labor Insurance Fund future grim despite short-term respite: Report

Taipei, Jan. 21 (CNA) The Labor Insurance Fund, a key source of funding for Taiwan's main basic pension program, has good short-term prospects due to recent premium and investment gains, but the future of the program remains challenging, according to a report released Tuesday.

The report on the fund, released every three years, estimated that the NT$1.1 trillion (US$33.59 billion) it had as of the end of November 2024 will dry up in 2031, three years later than projected in the previous report three years ago, but hidden liabilities continue to surge.

Revenues from premiums already fall short of benefits paid out, but many factors will help keep the fund solvent in the near future, said Chen Mei-nu (陳美女), head of the Department of Labor Insurance under the Ministry of Labor, at a news conference Tuesday to present the report's findings.

Among them, she said, 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.

Those factors will increase revenue from premiums by NT$280 billion from 2024 to 2031, Chen said.

She said the government estimate also 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.

But these gains may not be enough to sustain the health of the program, Chen warned.

Hidden liabilities

In Taiwan, 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 in Taiwan for workers other than civil servants, teachers and military personnel, who have their own labor insurance system.

With Taiwan's population rapidly aging, benefits have exceeded premium revenues for the past eight years.

In 2024, 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 deficit.

The report projected, however, that the program would have a negative cash flow starting in 2026 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 will run out of money and people reliant on labor insurance pension benefits would face deep cuts in the benefits they need to live on during retirement.

The report estimated that 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.

Chen said one suggestion to improve the system's finances would be to increase the salary cap on which premiums are paid to above NT$45,800, but she cautioned that this would also mean higher payouts since the benefit formula is tied to that salary number.

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 strengthen investment returns.