Chapter 4 Research Findings and Analysis
4.1 Discussion of the Current Status of Taiwan’s Labor Insurance System
This research is primarily aimed at conducting field interviews of people from different class backgrounds and summarizing key points regarding knowledge of related social labor insurance systems such as Labor Insurance, Labor Pension and National Pension Insurance and other related topics. The related interview content and analysis contents are summarized as follows:
1. Discussion of the Current Status of the Labor Insurance and Labor Pension Systems
Labor Insurance and Labor Pension can be called the most important labor insurance policy for the pension funds of ordinary domestic workers. Interviews were conducted with people from different class backgrounds for this research to discuss public knowledge and recommendations for related labor pensions and old-age benefits.
With regard to labor pensions, the majority of the interviewees had some basic knowledge about the scope and content of the benefit payments. For example, China Steel executive Mr. Liu, Dr. Chen and Teacher Chen said the following:
Labor Pension is social insurance system that the government provides for ordinary workers with payment functions for injury and disability pensions, old-age pensions and survivor pensions under respective conditions. The major difference with the old labor pension plan is the pension fund contributed by companies for deposit into a dedicated labor
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pension account is at least 6% based on the salary amount each month.
Currently retired Ms. Zhang mentioned:
The average person probably knows about labor pension benefits. I transferred to a different department when I was working. The benefits were different based on the amount of salary that was negotiated. For me, I considered it a form of basic security. Besides pensions, I also would check if there was group insurance (especially medical and accident). If there was more complete overall security, it could make up for what commercial insurance did not cover.
Additionally, Mr. Liu said this about old-age benefits:
In the past, the old-age benefits for Labor Insurance could only be collected in one lump sum payment. But due to frequent cases of elderly persons getting swindled out of their pensions in recent years and in order to provide an additional choice for workers, this was added as a pension payment method so workers could choose to receive their pension in one lump sum or in monthly payments when they retire. Still, there isn’t much difference in the amount of money that is received.
Dr. Chen remarked:
The advantage of the Old Age Pension is certain risks can be avoided with monthly payments. This may be somewhat beneficial to ordinary people but it may not be enough to rely on as a single source of funds for retirement. It mainly depends on your individual lifestyle.
Engineer Yan made this comment:
I am not too clear about the actual difference between the one lump sum old-age pension payment or one-time old-age benefit collection but I estimate that I might have trouble covering my living expenses if I only received ten or twenty thousand a month after I retire. So I have also invested in some commercial insurance and stocks to compensate for the shortfall.
Mr. Wu who works for a car company said:
Since monthly insurance payments are made for Labor Insurance, besides protecting against injury and sickness at work, it is the most important source of economic and financial support when one retires in the future. It is a very important social security system.
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With regard to labor pension issues, the labor insurance and old labor pension systems have been operating for many years now. People from different class backgrounds have a general understanding of the basic concepts. The difference is their individual needs. For example, ordinary middle class or office workers may want to have group insurance (commercial insurance portion) to protect against accident risks which may occur. As for old-age benefits, doctors and business owners may be able to rely on their own funds. As for the auto worker, the worker may depend more on the pension.
With regard to his knowledge about the difference between the old and new labor pension systems, Mr. Liu, a business owner, stated:
The old system was like an insured worker who has worked at the same organization for a period of 25 years and the payment method is a lump sum payment and the new system is a monthly payment system after retirement. As for the differences between the old and new systems, I believe the new system is a little bit better for workers. At least pension concepts have been added so that a single bad decision of a retired worker will not cause the person to become a burden on overall society. Dr. Chen mentioned that the old-age benefits for Labor Insurance were changed from a lump sum payment to monthly payments on January 2009.
Persons who reach the age of 60 who have worked for 15 years can collect old-age pension benefits and company is obligated to contribure 6% to the employee’s dedicated account. This offers more security but it should just be considered basic social security.
Teacher Chen added:
The main functions of the new system is tax saving and expand coverage.
The tax saving function is workers may voluntarily contribute to their pension funds and these funds may be deducted from one’s total income.
In addition, the people covered under the new system include fixed period contract workers and part-time workers. Under the new system, pensions can be collected at the age of 60 so it is better overall.
Engineer Yan mainly pointed out:
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The new system changed the old-age benefits from a lump sum to monthly payments. The difference is the money can be deposited each month in the employee’s dedicated account so there is less to worry about when switching jobs. One also doesn’t have to worry about your pension funds not being there.
Last, Mr. Liu made this recommendation concerning the Labor Insurance and Labor Pension Systems:
It should not have much of an impact on me at present. But with regard to the overall environment, the population is aging rapidly so more or more people will be collecting old-age benefits which will lead to financial imbalances. There is also the problem of low replacement rate of current worker pensions which may cause some people to feel that their pensions are insufficient so improvements should be made.
Dr. Chen made this comment:
It may satisfy the need for basic security but it is not quite enough in general. If the insured salary is 40,000 dollars and over 10,000 dollars is received after retirement based on how many years were worked, one would have to be quite frugal to make ends meet. Commercial insurance can be considered to provide more complete security or somewhat better interest rates would be more enticing. Also, the actuary system can be strengthened to avoid labor insurance fund disputes and other problems which could cause panic among the general public.
Teacher Chen and Engineer Yan mainly said:
We hope the government can provide more specific guarantees. There are also risks such as falling interest rates and inflation which could cause benefits to lose purchasing power. Maybe future policies can take commercial insurance practices into account to flexibly reinforce the system.
Mr. Wu also stated:
The greatest fear for labor insurance today is the system could go bankrupt just like the rumors circulating about the government’s Labor Insurance Fund. Feeling that their hard earned money would suddenly vanish, a bunch of people went to collect their benefits. So, I hope the government should provide more security to hard working blue collar workers. Otherwise, everyone’s lives will be really hard.
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Retired Ms. Zhang remarked:
I have been observing international labor insurance developments recently and recommend that the domestic labor insurance system be opened up a little for development such as allowing people to select their own funds to provide choices for public investment in pension funds. I feel this would be quite flexible. Future domestic labor insurance policy may take this in consideration.
With regard to the new labor pension system, the interviewees generally understood that companies contribute 6% of each month’s salary to the pension fund and deposit the amount into the individual’s dedicated labor pension account. If the worker voluntarily contributes a portion of this amount, then there is a tax saving effect. For people from different class backgrounds, the greatest difference may be that the income of business owners and dentists is much higher than the annual salary of the average citizen. As a result, labor insurance and labor pension fees are no longer the key focus of attention. Besides related new labor pension system being an operating cost for businesses and how to individually prepare pension funds in the future, the key principle is finding ways not to pay high levels of income tax. With regard to the income replacement rate for the average salaried worker or low-income household, labor insurance, labor pension system or national pension insurance premiums paid due to temporary unemployment (discussed below) all have become a major component of the pension funds. The completeness and security of labor insurance systems and the risks present in the fund have become the issues that people are most concerned about.
With regard to current domestic development, the Ministry of Labor has completed the related amendment bills which mainly involved changing the government commissioned operation of monthly allocated pension funds of workers to individual selection of the platform model and investment products by workers and
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tax-exempt status. However, workers are individually responsible for gains or losses.
The main reason is the Ministry of Labor has taken in consideration that less than 6%
of the 340,000 workers make voluntarily contributions to their pension fund. It is hoped that allowing self-selection of the investment plan will raise the income of workers and make voluntary contribution more attractive. Selection of the original plan by workers is combined with the employer contribution into accounts to ensure an income no less than that from a two-year fixed term deposit (According to Article 32 of the Enforcement Rules of the Labor Pension Act: The profits from the utilization of employees' pension contributed in accordance with Paragraph 2 to Article 23 of the Act shall not be lower than the interest rate paid for a two-year fixed term deposit by local banks, and the average annual interest rate for the time period between the starting date of contribution until the legal date of pension collection shall not be lower than the average rate of interest paid for a two-year fixed term deposit by local banks for an equivalent length of time).
In addition, self-selection of platform items is presently being added to domestic policy. There are two self-selection options: funds and annuities. Self-selected funds are divided into aggressive, moderate, conservative and target date types. Annuities include guaranteed and non-guaranteed types. Workers can flexibly select the investment fund or annuity product based upon risk attributes and current age. The self-selected investment plan for voluntary pension fund contributions mainly originated from the U.S. 401K retirement saving plan and Hong Kong’s Mandatory Provident Fund concepts. Through self-selection of funds, workers can increase the expected pension yield depending on the investment attribute which mainly allows private mutual fund companies to operate under a fixed time and amount model and encourages ordinary people to regularly contribute pension funds each month to their own pension account. By being able to select their own investment product, workers
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may select an investment portfolio that suits their individual needs based on their own investment preferences and the length of time before retirement to accumulate their own old-age pension fund.
However, what should be paid attention to is the use rate after the self-selection platform is introduced, actual public participation incentives and problems regarding the performance of difference investment portfolios. For example, there are questions like: is the performance of aggressive, moderate and conservative types higher than the income from two-year fixed term deposits and do people have the relevant financial knowledge and time to manage related investments? In the future, government agencies will need to provide relevant guidance and training including selection of investment products that offer real positive benefits to working class people.
Generally speaking, the advantages of opening up self-selection of platform for pensions include the voluntary worker contribution percentage can be used for investment and is exempt from income tax. In addition, compared to the passive government fund management in the past, people can flexibly and actively select from a broader range of insurance annuities, funds and other investment products and select a reasonable return on investment based upon one’s individual risk preference. One of the disadvantages is there is no minimum guaranteed income such as in the past with the National Treasury so there is the possibility that related pension funds of people could shrink in value. In addition, ordinary working class people may not have the related financial knowledge such as a comprehensive knowledge of currency, bond, global, regional and other various funds which would make selection of related products difficult. For the future, this research recommends related facilitating government agencies to team up with related institutional investors to strengthen financial education and guidance for people to give them a sound grasp of individual
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retirement financial planning through self-saving, pension fund contribution or other investment channels and also link up with insurance associations and other organizations to encourage adoption of commercial insurance into the pension self-selection platform. The advantages gained include inclusion of annuity insurance to solve cash aging problems and inject vitality into Taiwan’s commercial insurance market.
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2. Discussion of the National Pension System
This research also discussed issues regarding National Pension Insurance including basic knowledge about National Pension Insurance, calculation of collected pension amounts and related recommendations. During the course of the interviews, some of the interviewees had not paid National Pension Insurance so the following are some of opinions of persons who have paid National Pension Insurance including Engineer Yan and the auto worker Mr. Wu.
Regarding his knowledge of National Pension Insurance, Engineer Yan said:
I have been notified while I was switching jobs. I also have looked up some of the regulations. It is mainly for ROC citizens aged 25 to 65.
People who are not covered by military, civil service, worker or farmer insurance must join the new system. But I haven’t actually determined exactly how much of an effect the National Pension Insurance will have on my life after retirement. I only know I have receive payment reminders when I switched jobs. I just think of it as an extra source of funds after retirement. You know a little additional benefit.
Mr. Wu commented:
I usually receive payment reminders when I was out of work or switching jobs. The groups that are targeted for this insurance are students and unemployed persons. The government forces them to pay but I am not sure how much is received back. I feel that it is not too much.
Generally speaking, the people who currently pay National Pension Insurance is ordinary workers during their time as a student or when switching jobs. But they were not very clear or concerned about that actual payment details. Conversely, they generally knew that another form of national insurance must be paid when one is out of work.
In addition, Engineer Yan made this comment about how to improve the deficiencies in National Pension Insurance:
I feel like the amount received is not too much. So one must rely on your
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own investments such as commercial insurance, stocks, funds or earn money through investment in real estate if possible to accumulate more money.
Mr, Wu said this about National Pension Insurance:
It would be better if we didn’t have to pay National Pension Insurance.
There are already a bunch or everyday taxes and all sorts of fees. The unemployed already have trouble making ends meet and they still have to pay this. I feel it is not reasonable. This is especially true for the older generation who feel it is strange or feel the government is cheating us out of money.
From the interviews on the topic of National Pension Insurance, one can see that the average citizen has a relatively fuzzy impression of National Pension Insurance considering that it is a new system that people who do not participate in Labor Insurance and other insurance have to pay into. But there were some comments that indicated people who do not understand the system will generally believe that they are being cheated or even do not understand why one might need a supplementary payment system so the related National Pension Insurance System and implementation details should be included in the matters announced at meetings of grassroots officials such as village chiefs and neighborhood magistrates. In general, persons with high incomes do not care much about how much money they can collect from the National Pension Insurance System. For low and mid-level income persons, they hope the government can explain the policy details and direction more clearly and hope the government can use the money in the right places.
In addition, after examining related literature and the interview results, a number of significant improvements and revisions have been implemented domestically such as changing from the old labor pension system to the new labor pension system to correct some existing problems which have been organized into the key points below:
1. Individual dedicated pension accounts are primary and annuity insurance is
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secondary: The employer must contribute at least 6% each month to the pension funds of their workers and deposit the amount into the worker’s individual dedicated pension account set up by the Bureau of Labor Insurance which offers greater security for workers.
2. Cumulative labor pension system: For working period of the worker under the new system, the pension fund contributions made by the employer are cumulative and transferable. They are also not affected by job transfers or business closings and shutdowns so it is relatively secure.
3. Expansion of coverage: Mandatory contributions are made by ROC national workers under the Labor Standards Act including fixed-term contract workers and part-time workers.
4. Tax benefit incentives for voluntary contributions: Workers may make voluntary contributions to their pension fund ranging up to 6% of their monthly salary. For voluntary contribution by workers, the entire amount may be deducted from individual’s total income for that year. The tax savings provide another incentive for workers. However, the employer should explain this clearly during the
4. Tax benefit incentives for voluntary contributions: Workers may make voluntary contributions to their pension fund ranging up to 6% of their monthly salary. For voluntary contribution by workers, the entire amount may be deducted from individual’s total income for that year. The tax savings provide another incentive for workers. However, the employer should explain this clearly during the