A report released on August 22 by the International Labour Organization (ILO) suggested that the Vietnam Social Security Fund (VSS) could start having deficits by 2021 and experience depletion by 2034 if no reforms are made.
The report, titled “Actuarial Valuation of the public pension scheme of the Vietnam Social Security Fund,” was presented to the Vietnamese Government at a workshop co-organized by the ILO and the Ministry of Labour, Invalids and Social Affairs.
It provided financial projection of the present public scheme of the fund and analysed possible reforms that could increase the fund’s sustainability.
This is in the context of Vietnam’s demographic changes, low insurance coverage and limited law enforcement and the country’s preparations for the reform of the Social Insurance Law, which is expected to get the green light from the National Assembly next year, thus improving the coverage of workers and ensuring financial sustainability of the fund.
“Social insurance reform is like driving a big boat: the captain cannot wait until the last moment,” said ILO Vietnam Director Gyorgy Sziraczki. “Rather, it should start turning even before seeing the obstacles in front. Unfortunately, the ILO report shows that the obstacle is dangerously close.”
“Government, employers and workers need to work together urgently and find the right balance to ensure pensions now and in the future,” he added.
To ensure the fund’s sustainability, according to the ILO, Vietnam should gradually increase the retirement age to 65 for both men and women, considering there is and will continue to be a substantial increase in life expectancy, and thus a smaller worker to pensioner ratio.
The report also stressed that combined set of reforms to address the issues of financial sustainability as well as the adequacy and the fairness of benefits between private-sector workers and civil servants must be implemented together.
The country should also extend the coverage of the VSS pension scheme and support the development of supplementary voluntary pension schemes.
In the opening speech, Vice Minister of Labour, Invalids and Social Affairs Pham Minh Huan, stressed that in the 2020-50 period, the rate of ageing for Vietnam’s population is expected to be among the fastest in Asia.
ILO projects are critical for the Ministry to have the ground for future development plan of the social insurance and retirement policies, he said.
The Vietnam Social Security (VSS) covers Vietnamese citizens with employment contracts of three months or longer, but enforcement remains a challenge. Only one fifth of the total workforce has social insurance today.
Despite increase in compulsory contribution collection to VND89.6 trillion last year from VND6.3 trillion in 2001, only 47 percent of all registered enterprises contributed to compulsory social insurance fund in 2010.
Vietnam started its ageing phase when over 60-year-olds accounted for more than 10 percent of the total population in 2012, five years ahead of the prediction. With fewer young workers in the future and a generous pension formula, the pension fund will be in jeopardy unless urgent measures are introduced in the reform.
Besides ensuring financial sustainability, other reforms would need to protect workers after retirement by making sure that employers and employees contribute to the social insurance fund based on the total income instead of the basic salary in line with the new Labour Code, according to Mr Sziraczki.