The International Labor Organization (ILO) has said Vietnam's pension scheme needs comprehensive reform as the nation's social security fund will soon need to start selling assets to pay pensions.
The warning was issued at a conference held by ILO and the Ministry of Labor, Invalids and Social Affairs in Hanoi.
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 indicates 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.
"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 Vietnam Director Gyorgy Sziraczki.
"It's critical for Vietnam 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 ILO.