Labor Insurance Isn't Based on the Last 5 Years Before Retirement! The Key to High vs. Low Payouts Lies in 'These 60 Months'—Expert Reveals One Strategy to Maximize Your Pension

Many workers plan to raise their insured salary to the highest bracket in the five years before retirement to increase their post-retirement labor insurance pension. In response, labor insurance expert Zhang Mishi warns that this 'final five years' mindset contains a common misconception. Suddenly increasing insured salary over a short period may trigger audits by the Labor Insurance Bureau, potentially leading to rejection and even penalties for employers. Additionally, if workers choose to claim reduced benefits at age 60, the reduction rate does not revert at age 65—it applies for life. She recommends starting retirement planning at least 10 years in advance.

Should you raise your insured salary in the final five years? Experts reveal two major blind spots in labor insurance! Claiming at 60 means receiving 80%—for life

In her YouTube channel 'Labor Friend's Secretary Zhang Mishi,' Zhang Mishi highlights two common misconceptions workers have when planning for retirement.

'Only raise to the highest level after 55?' Debunking two common labor insurance myths

Blind Spot 1: Misunderstanding that 'highest salary in the last 5 years = highest pension'

Labor insurance pension calculations are based on the average of the 'highest 60 months' of insured salary during the entire coverage period. These months do not need to be consecutive and are not limited to the final five years before retirement. In fact, the monthly labor pension takes the average of the 'highest 60 months (five years)' at any point during the insured period. If a worker has already accumulated 60 months at the highest insured salary level (NT$45,800), even if they later change jobs or lower their insured salary tier, the pension calculation baseline remains unchanged. Therefore, there's no need to rush to increase contributions only in the final five years.

Blind Spot 2: Late planning and sudden salary increases may trigger Labor Insurance Bureau audits

• For employees insured through companies:

If someone has long maintained a low insured salary and suddenly raises it to the highest level (NT$45,800) at age 55, it is highly likely to trigger an audit by the Labor Insurance Bureau. For company-insured workers, documentation such as payroll records, tax filings, or salary transfer records must be provided. If actual salaries have long met the higher level but were only recently adjusted, employers may face investigations for past 'underreporting of high salaries.'

• For those insured through occupational unions:

If someone insured through an occupational union suddenly requests to raise their insured salary to the highest level in the final five years, both the union and the Labor Insurance Bureau typically reject the request.

Want to safely increase your insured salary? Experts recommend planning at least 10 years in advance

To avoid audits and rejections by the Labor Insurance Bureau, Zhang Mishi advises allowing sufficient buffer time when adjusting insured salaries:

• Start adjusting 10 years early: If planning to claim at age 60, begin preparations before age 50, gradually adjusting insured salary in line with actual income.

• Step-by-step salary increase strategy: Insured salary doesn't need to jump straight to the ceiling of NT$45,800. Raising it to NT$40,100 or NT$43,900 is also a relatively safe and feasible strategy. Avoid retiring and claiming benefits immediately after 'exactly five years' of adjustment.

• Consider other benefit entitlements: Even if the highest 60-month baseline has been met, benefits for sickness, disability, and death are calculated differently from old-age pensions. If insured salary is lowered too much later, benefit amounts will shrink significantly in the event of an insurance incident.

Think carefully before claiming at age 60! A 20% reduction means '80% for life'

In addition to insured salary, Zhang Mishi specifically warns about the lifelong impact of 'early claiming' of labor insurance old-age pensions:

1. Reduction rate applies for life: The discount is permanent

Many workers mistakenly believe that the 20% reduction for claiming at age 60 will revert to full benefits at age 65. In reality, once early claiming is chosen, the reduction rate is 'lifelong' and does not revert to full benefits even after age 65. For example, if the full monthly pension at age 65 would be NT$20,000, claiming at age 60 results in only NT$16,000, and this amount remains unchanged for life.

Unless the cumulative growth rate of the Consumer Price Index (CPI) exceeds 5%, the Labor Insurance Bureau will not adjust the monthly pension amount. Otherwise, the amount remains fixed.

2. For those with shorter contribution periods: Consider delaying claims

For workers with shorter contribution periods in mid-life (e.g., 17 years at age 51), even working until age 60 results in only about 26 years of service. If they choose reduced benefits at that point, the monthly payout will be low. Such individuals should consider delaying claims until age 63 or even 65 to accumulate more service years.

• If service years exceed 35 and the average insured salary exceeds NT$40,000, claiming at age 60 with a 20% reduction can be advantageous.

• If service years are short (e.g., 17 years in a union at age 51, totaling 26 years by age 60), claiming early at age 60 is not recommended. The 'golden crossover' typically occurs around age 63, or it's better to wait until age 65 for full benefits.

• Unless the monthly amount is very low, 'delaying claims' (e.g., until age 70) is strongly discouraged, as total payouts are usually not worthwhile given average life expectancy.

Differences between old and new Labor Retirement Schemes and the concept of dedicated retirement funds

Zhang Mishi also explains the differences between labor insurance and the Labor Retirement Fund:

• Old Labor Retirement Scheme: Service years reset to zero upon resignation. The reserve funds held in a Taiwan Bank account and investment dividends belong entirely to the employer.

• New Labor Retirement Scheme: 6% is contributed monthly to a personal account. The account follows the worker, and workers actually enjoy investment dividend returns.

Zhang Mishi emphasizes that retirement planning should not focus solely on 'how to claim the most,' but rather on whether it can sustain long-term post-retirement life. Those opting for a lump-sum payout should treat the funds as dedicated retirement savings and avoid using them for other purposes. Those choosing monthly payouts should consider longevity risk and living needs together.

Risks of taking a 'lump-sum' old-age benefit and recommendations for continued coverage

1. Risks of 'confiscation' and spending the lump sum:

Workers who meet the criteria of 25 years of service and age 50 or older are eligible for a lump-sum old-age benefit. However, Zhang Mishi strongly advises workers to choose 'monthly payout (annuity)' over 'lump-sum.' In practice, too many people receive a large lump sum and then spend it on other uses (e.g., giving to children, lending to friends, or spending it all), failing to reserve it for retirement. This often leads to financial hardship in later life. Unless health is poor, monthly payouts provide the most stable retirement security.

2. 'Insuring at the minimum' later reduces other benefits:

Some workers, after maintaining the highest insured salary (NT$45,800) for 10 years while employed, assume that lowering their insured salary to the minimum later won't affect their retirement payout (since the highest 60-month condition is already met). Zhang Mishi warns that while this doesn't affect old-age pension calculations, it severely reduces protection for other benefits. Sickness benefits, disability benefits, and family death benefits are all calculated based on the 'average of the last 6 months' before the incident. For lump-sum old-age benefits, the average of the last 3 years is used. Lowering insured salary to the minimum to save on premiums means significantly reduced payouts if an accident or illness occurs.

Labor Insurance Pension Adjustment and Claiming Strategies

| Planning Item | Common Misconception / Incorrect Practice | Expert Recommendations and Correct Practices | | --- | --- | --- | | Insured Salary Calculation | Believing only the final 5 years are counted | The 'highest 60 months' during the insured period are counted, not limited to the final 5 years and need not be consecutive | | Increasing Insured Salary | Suddenly raising to NT$45,800 at age 55, easily triggering audits and rejection | Begin gradual increases before age 50 (10 years in advance), based on actual income; can also choose NT$40,100 or NT$43,900 | | Early Pension Claiming | Mistakenly believing benefits will revert to full amount at age 65 | 20% reduction for claiming at age 60 is 'lifelong applicable'; will not revert to full amount at age 65 | | Workers with Shorter Service | Claiming reduced benefits at age 60 despite insufficient service, resulting in low monthly payout | Consider delaying claims to age 63 or 65 to increase accumulated service years and raise benefit amounts | | Old vs. New Labor Retirement Schemes | Confusing rights under old and new systems | Under the new system, 6% goes to a personal account that follows the worker and earns investment dividends; under the old system, service years reset upon resignation and dividends belong to the employer |

Q1: If I've already paid the highest insured salary of NT$45,800 for 60 months in the past, but later changed jobs and had a lower salary, will it affect my retirement pension?

A1: No, it will not affect the calculation of the old-age pension. The labor insurance old-age pension takes the average of the 'highest 60 months' during the insured period. As long as you've accumulated 60 months at the highest tier, lowering your insured salary afterward won't change the pension calculation baseline. However, note that sickness, disability, or death benefits are calculated based on recent insured salary before the incident—lowering it too much will affect these protections.

Q2: If I claim labor insurance pension early at age 60, can it be restored to full amount after age 65?

A2: No. Early claiming of labor insurance pension reduces the amount by 4% per year, up to 20% for claiming 5 years early (at age 60). This reduction rate is lifelong and remains at 80% after age 65—it does not automatically revert to full amount.

Q3: Why does suddenly raising insured salary to the maximum in the final 5 years before retirement easily trigger audits?

A3: A sudden large increase in insured salary over a short period is considered abnormal behavior. The Labor Insurance Bureau will require proof such as payroll records, withholding tax forms, or salary transfer records. If actual salaries haven't correspondingly increased, the adjustment will be rejected, and the company may be investigated for past 'underreporting of high salaries.'