Social insurance: Advanced scheme to rob the poor

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Our society has turned into one where the public finances the state and in return, the state robs us even more. Did you know that the state is trying to increase social insurance premium by five percentage points to 19 percent of our salary by 2020? Well, the only solution the government came up with to pay off the growing pension fund deficit was breaking into ordinary working people’s pockets.

Government officials explained this decision very deceptively, saying, “Increasing social insurance premium will make it possible to set higher pension for people. It is dedicated to prevent potential risks when the pension age is raised in 20 to 30 years.” What this actually means is that the state plans to exploit the public as much as possible in the meantime.
Don’t be fooled when government officials claim the social insurance premium accumulates into savings. On the contrary, it is recorded under your name and spent to “sustain” five different funds. 

“Revenue to the social insurance fund is spent on five funds. Among them, the pension fund receives the most financing from the state. Other countries have these funds recover their spending and create accumulation through revenue, or operate under solidarity principle. In Mongolia, we go by the principle to have people of working age finance the seniors. We’ve been operating under the ‘one for all’ motto for many years and yet, there are some people who want their money only for themselves. They don’t understand this financing principle well. Basically, it means that Dorj’s social insurance premium is used to provide Dulmaa’s pension. So, it means that it’s impossible for Dorj to have (social insurance) savings. However, the amount he paid will be recorded,” stated G.Ganchimeg, policy and coordination specialist at the Ministry of Labor and Social Protection.

Out of the 1.4 trillion MNT generated to the social insurance fund in 2017, 61.3 percent of the amount was reallocated to the pension insurance fund, 22.2 percent to the health insurance fund, seven percent to benefits and unemployment insurance funds respectively, and the rest to the insurance fund for industrial accidents and occupational diseases. This basically means that the social insurance fund is practically empty. It wouldn’t be an exaggeration to say that this fund exhausts all the money taxpayers pay within the year and then some.

Although 65 to 75 percent of the money centralized to the social insurance fund is allotted to the pension fund, this amount is said to be nowhere near sufficient. Reportedly, 300 billion MNT to 600 billion MNT is extracted from the state budget each year to provide pensions. Decision makers are shutting us down with the excuse that this system is “solidarity principle” consistent with “international standards”.

Mongolia actually had been consistently accumulating savings since the Law on Individual Pension Insurance Contribution Accounts was passed in 1960. However, as insiders reported, politicians used all of the money to fulfill their election promises and repay other outstanding fiscal deficit. A government official explained, “The Law on Individual Pension Insurance Contribution Accounts is aimed to determine pension for each individual based on the amount of social insurance premium they contributed in the past. It’s not like bank savings that you can get back.”

It’s “unfortunate” if a person who works 40 or so years to retire at the age of 60 but pass away at 61. Merely 600,000 MNT is issued from the state to cover his/ her funeral. The current law doesn’t allow children of the deceased to receive the social insurance their parent paid all of their life in their stead. Apparently, giving that money to another living for a longer time is what the state call “solidarity principle”.

We pay social insurance premiums, hoping to use it when we retire. We willingly allow the state to deduct health insurance contribution from our monthly wage so that we can receive health care when we need it in the future. Simply put, the wellbeing of Mongolians depend on that small blue booklet and their lifetime guarantee depend on the red booklet. Yet, neither of them are able to be a “ticket” to living a decent life. There’s always the possibility we will not survive until we can benefit from the social insurance premium we pay. Even though insurance should be providing us protection against a possible eventuality, it’s become a mechanism for the state to offset its deficit, while putting the public under financial burden.

Relooking into package laws

Parliament decided to raise seven types of taxes last year, following the enrolment to the International Monetary Fund’s Extended Fund Facility. Specialists at the Social Insurance General Office gave insights on the effects of the one-percent rise of employer and employee social insurance contributions.

Policy implementation and research specialist S.Lkhagvadorj stated, “Between 1995 and 2007, employers and employees contributed 19 percent of their wage to the pension insurance fund. Starting in January 2008, the contribution was reduced to 14 percent. At the time, nobody said anything but good things about this decision. Now, the public is demanding higher pension. To increase pensions, we needed to increase revenue to the social insurance fund. However, we refrained from imposing abrupt increases to employee and employers’ social insurance contributions. We decided to take progressive steps to return to 2007’s amount over the course of three years. This may be burdensome to the insured and employers in some ways but it will allow them to receive a higher pension in the future.”

Progressive increase to social insurance contribution is estimated to increase the pension fund’s revenue by 122 billion MNT this year, 193 billion MNT next year, and by 337 billion MNT in the following year. This improvement is also expected to cut down state funds designated to the pension fund in addition to raising pensions, according to specialists.

Even so, there are downsides to this. As many people complained, not everyone gets as much pension as they paid for, not to mention again that not everybody is able to live until the pension age. Some people consider that it’s best to instead start a savings in a bank that will give monthly interest.

“I think it’s wrong to increase the social insurance premium. Tax is increased almost every year. It wouldn’t be an exaggeration to say that approving the state budget with deficit has led to an almost empty social insurance fund. I hear that there will not be enough money to provide pension by 2020. To accumulate funds in advance, the government is ransacking our pockets. I should’ve just put all the money into my savings account and benefitted from the interest,” said J.Zorigt, a resident of Bayangol District.

J.Zorigt implored others to thoroughly investigate the spending of funds as his pension was set much lower than how much he’d paid and that there have been several cases of exploitation of deceased people’s pensions. The most recent case took place in Bayan-Ulgii Province where a deceased person’s pension was allotted to another for four years after his death, he said.

Resident of Bayangol District D.Dulamsuren complained, “The government keeps increasing taxes when it hasn’t increased wages. Pension and benefits provided from the social insurance fund is not being converted into monetary value. Just remember what we could buy with 1,000 MNT in 2010 and then, think about what it can buy today. Their value should be compared and equalized. The government should stop setting pension based on the average of wages.”

“We earn 1.6 million MNT a month and voluntarily pay 13 percent of it as social insurance contribution. Next year, apparently we’ll pay 15 percent. Instead of raising taxes, the number of government officials should be cut down, or their wages given based on their performance,” she suggested.

The majority of pensioners worked throughout their youth as they paid social insurance contribution only to receive 243,000 MNT to 248,000 MNT as pension per month. This is nowhere near enough to make ends meet in today’s situation. It is lower than allowances given to people living with disabilities and guardians bringing up children whose parents have died. A person who used to earn a million MNT a month and paid social insurance contribution for 20 years will be able to retire with a monthly pension of 280,000 MNT. Dissatisfied with this, numerous people are imploring the state to relook at the package laws related to the social insurance and determine pensions based on the total amount of paid premium.

Experts have contradicting opinions about having social insurance premium raised by 2.5 percent by 2020.

Labor economics researcher N.Narangerel supports the government decision.

He said, “Our nation’s insurance fund exists because of the money deducted from people’s wages. It could be said that not a single insurance fund has savings because all the money accumulated in insurance funds until 1990 were spent as the society changed and the economic situation worsened. Since then, Mongolia’s economic capacity and labor productivity wasn’t enough to effectively create savings in the social insurance fund,”

“Moreover, the Mongolian population grew between 1965 and 1985, but the birth rate declined starting 1990. People who were born during the peak period will retire in 2020. However, there is insufficient fund to provide social welfare for all of them and there’s also the possibility that the number of pensioners will exceed the number of employees paying the social insurance premium. There’s also a study that shows the percentage of people expected to actively work starting 2030 will be relatively smaller than now. At this rate, insurance funds may go bankrupt by 2035. To prevent that from happening, insurance funds need to be increased. To ensure sustainability, it’s crucial to take steps to raise employer and employee social insurance contributions. The only thing to focus on next might be to improve supervision and monitoring the fund’s spending.”

On the other hand, a labor economics and accounting professor at the Mongolian Labor and Social Relations Institute says it’s not the time to increase social insurance premiums yet.

Professor L.Khishigtogtokh said, “I understood that the social insurance premium raise is aimed to accumulate the fund’s money and increase fiscal revenue. At this time, when people’s real income is low and prices of commodity and services are unstable, it’s wrong to increase the premium amount. A one-percent rise may be little in terms of an individual but when everyone’s portion is combined, it will be considerably large. There are many people who would agree that the healthcare and welfare for the public is poor. In other words, if these services will not improve even if the social insurance fund is increased, there’s no point for taxpayers to pay higher taxes and fees. Before anything, social insurance system, its accessibility and services need to be improved. When people’s income increase and the effect of exchange rate fluctuations on livelihood is reduced, only then should social insurance premium and other taxes be raised.”

In any case, as approved by the government and International Monetary Fund, social insurance premiums of employers and employees will be raised by 0.5 percentage points in January next year and by two percentage points in 2020.

Dulguun Bayarsaikhan