A man leaves a pension office in Hanoi after receiving his monthly payment
The Ministry of Labor, War Invalids and Social Affairs (MOLISA) is working on a draft plan that will increase the average monthly pension to around VND10 million from the present VND3 million.
The plan, known as the Supplemental Retirement Insurance Fund, will be submitted to the government this November after MOLISA collects opinions from experts later this month.
The plan will be piloted at state-owned enterprises, joint stock companies as well as foreign-invested and private companies, said Pham Truong Giang, deputy chief of MOLISA's Social Insurance Department.
Giang said the procedures for an employee to sign up for the fund are quite simple and convenient. Signing up is also voluntary, he added.
According to the plan, an employee and her/his company will agree to join the fund by opening a personal account for the former at a bank chosen by the latter. The worker will then pay 5-10 percent of her/his gross monthly income into the account until she/he retires.
Apart from the monthly pension paid by the state, the employees will now have an additional pension paid out by the fund.
Giang said, "MOLISA has calculated that pensioners will receive an average VND5.56 million from the fund each month after 15 years of contribution.
"If added to the basic pension, retirees can receive up to VND10 million per month in total."
Furthermore, workers will enjoy other insurance benefits based on payments made to the fund.
Pham Minh Huan, deputy minister of Labor, War Invalids and Social Affairs, told newswire VietNamNet the Supplemental Retirement Insurance Fund should be set up in Vietnam.
"In recent years, the life expectancy of Vietnamese people has increased, but the present monthly pension can hardly cover all expenses in case of poor health or other incidents.
"Such a fund could create financial sources for them to secure their life in later years, and help them avoid being a burden on their families and the society."
According to Giang, around 80 countries in the world have set up such funds.
"The current average monthly pension of VND3 million cannot offer Vietnamese people security (in their retired years), while our social insurance system has not operated on the principle that workers enjoy what they have paid for.
"Many people want to pay more when they are still working in order to have a higher pension when they retire," Giang said.
Under the Social Insurance Law, workers are only allowed to pay a maximum monthly premium equivalent to 20 months' minimum wage.
Tran Thi Thuy Nga, chief of the Social Insurance Department, said it is up to the government to decide when and for how long the project will be implemented on a pilot basis.
The plan was initiated following a survey conducted by MOLISA that interviewed 610 businesses in Hanoi and Ho Chi Minh City.
More than 70 percent of surveyed businesses said they were willing to join the fund, and 63 percent said it would create a better retired life for workers.
It is expected that the fund will be implemented in three phases: it will be piloted at some enterprises between 2012 and 2015, be applied to more enterprises between 2015 and 2020, and from 2020 onwards, joining the fund will be compulsory.
Social insurance paradox
According to MOLISA, a paradox exists in Vietnam as the number of social insurance payers does not match the number of recipients.
In 2007, an average 217 people paid social insurance for one pensioner, but the number of payers decreased to 10 in 2011.
The Social Insurance Fund is facing a serious imbalance between revenue and outgo, according to the ministry, which estimates it could run out of funds by 2037.
In the first two months of this year, the total premiums collected amounted to around VND16 trillion while the payout was more than VND23.8 trillion.
Last year, the International Labor Organization (ILO) warned that Vietnam's pension scheme needs comprehensive reform as the nation's social security fund will soon need to start selling assets to pay pensions.
According to the report titled "Actuarial valuation of the public pension scheme of the Vietnam Social Security Fund" released by ILO, under current conditions, the fund may be depleted by 2029.
The report says that only one-fifth of the workforce of 50 million workers contribute to the pension scheme a "modest" level compared to the rest of the world.
Pension coverage may increase in the short term as Vietnam is in the demographic bonus period with those at working ages (15 and older) accounting for 58.5 percent of the population, according to the report.
However, it should be noted that most of the population are and will be excluded from the social security coverage in the near future, it says.
"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 Vietnam's economy," said ILO Vietnam Associate Expert Carlos Galian.
According to ILO, the present public pension scheme is characterized by low retirement ages 55 for women and 60 for men, with special early retirement arrangements for some groups in the workforce.
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 says. It is estimates that the replacement rate (percentage of wages claimed back during retirement) for private-sector employees is only about half of that for civil servants.
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 ILO.
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