Social insurance

Viet Nam’s pension scheme reform needed: ILO report

The International Labour Organization (ILO) in Hanoi on August 2 launched an important report, indicating the need for a comprehensive reform in Viet Nam’s pension scheme as Viet Nam Social Security will soon need to start selling assets to pay pensions.

Press release | 02 August 2012

HANOI (ILO NEWS) -- The International Labour Organization (ILO) in Hanoi on August 2 launched an important report, indicating the need for a comprehensive reform in Viet Nam’s pension scheme as Viet Nam Social Security will soon need to start selling assets to pay pensions. Under current conditions, the fund may be depleted by 2029.

The report “Actuarial valuation of the public pension scheme of the Viet Nam Social Security Fund” was made as requested by the Vietnamese Government with the support from the Ministry of Labour, Invalids and Social Affairs, Viet Nam Social Security, Ministry of Finance and General Statistical Office.

Addressing a workshop entitled “Actuarial Valuation of Viet Nam Pension Scheme – Findings and Recommendations” where the report was launched, MoLISA Vice Minister Pham Minh Huan said: “It is essential to analyze the current pension fund and forecast its changes in the future as important grounds for policy-making in social insurance and pension scheme, particularly the 2012-20 Social Insurance Policies Reform plan.”

According to the report, the public pension scheme coverage is modest, at about one fifth of the workforce (the number of contributors to the pension scheme of 9.3 million compared with 48.5 million workers in 2009).

The coverage may increase as Viet Nam is in the demographic bonus period with those aged 15 and older who belong to the labour force accounting for 58.5 per cent of the population in 2010. However, it should be noted that most of the population are and will be excluded from the social security coverage in the near future.

“The pension scheme will start running deficits from 2020 and the reserves of the fund could be totally depleted by 2029, causing big problems for Viet Nam’s economy,” said ILO Viet Nam Associate Expert Carlos Galian.

The present public pension scheme is characterized by low retirement ages, especially for females, with special early retirement arrangements for some groups of the population amid the steady aging of the population due to better life expectancy and declining fertility rate.

There is also a fundamental problem in the imbalance of benefits between civil servants and private-sector workers, mainly caused by the difference in reference wages for pension calculation. It is estimated that the replacement rate of private-sector workers is only around half of that of civil servants.

“The good news is that the National Assembly has scheduled the Social Insurance Law amendment by the end of next year and that the Government acknowledges that deep reforms are required,” said ILO Viet Nam Director Gyorgy Sziraczki. “It’s critical for Viet Nam to balance its pension fund.”

A gradual increase in retirement age is seen as an essential way to improve the future financial balance between contributions and benefits of the fund. However, according to the ILO, increasing retirement ages alone is not enough.

Changes in the pension formulae are also recommended to reduce replacement rates.

A combination of increased retirement age and adjustment of the pension formula, would lead to stability in the pension fund in the long term.

According to Mr Huan, ensuring and improving the social security system, of which social insurance and particularly pension scheme is the centre, has always been a priority of Viet Nam.

“However, it is recommended that another study should be carried out for identifying alternatives to protect informal workers, using a combination of voluntary insurance and non-contributory pensions,” said Mr Galian.

The Viet Nam Social Security covers Vietnamese citizens with employment contracts of three months or longer. Civil servants and public employees are under the compulsory scheme called the Retirement and Survivorship Allowance Fund (RSAF) and working-age Vietnamese citizens between 15 and 55 (for women) and 60 (for men) years old who are out of the compulsory coverage are under the voluntary scheme called the Voluntary Social Insurance Fund (VSIF)