CHALLENGES OF THE PENSION SCHEME IN VIETNAM

1. Social Insurance Law adopted in 2006 Compulsory SI schemes including: Sickness, Maternity, Employment injury–occupational diseases, pension and survivors, effective from 1/1/2007 Voluntary SI with two regimes: pension, and survivors, effective from 1/1/2008; Unemployment Insurance: UI allowance, Health Insurance for unemployed, Vocational training and Employment services, effective from 1/1/2009

2. Pension Scheme - compulsory On monthly basis, - Employees contribute 5% of their salary; but from 2010 on wards, this contribution rate will be increased by 1% for every 2 years until it reaches 8%; - Employers contribute 11%; and from 2010 onwards, this rate will be increased by 1% for every 2 years until it reaches 14%.

3. Challenges on demographic changes  During : the speed of ageing population in Vietnam will be fastest in Asia, and the country might have 30% of its population over 60 years old by  Vietnamese’s current life expectancy is 73, but the healthy life expectancy is only about 63 (each person has about 10 years on sick or bad health)

4. Challenges in policies There is a big difference between private and public sectors Replacement rate in Public sector is very high and culated based on the salary of the last 5 years; while Replacement rate in Private sector is very low since it is based on the salary of whole contributed period. indexation used for pension adjustments is : wage-increase related for Public sector, and CPI for Private sector.

4. Challenges in policies Real retirement age is low, about 53,4. The reasons are: Pension is reduced only 1% for every of year of early retirement, Combination of different policies in pension regimes, such as early retirement resulting from reduced work capacity, down sizing in public sector, or hard and noxious occupations. Life expectancy after retirement of men (after 60 years old) is 19,5 years; and of women (after 55 years old) is 24,5 years.

4. Challenges in policies Compliance rate is low: only 20% of total labour force are members of compulsory SI scheme. No data on how many people are actually on the labour contract from 3 months or above (under the coverage of compulsory SI schemes). The insurable salary on which the contributions are paid is not the total earnings of insured members. On average, the insurable salary accounts for 50% of total earnings.

4. Challenges in policies Pension is adjusted by wage increase rate. In appropriate formulae for calculating pension: Minimum: (45%+2%*(No. years of contribution-20), 75%) x insurable salary.

4. Challenges in policies This formulae doesn’t encourage workers to work longer or make SI contributions for a longer period. Maximum pension provided to female insured with 25 years of contribution; and male insured with 30 years of contribution.

4. Challenges in policies - Lump sum payment is allowed in pension scheme: 400,000 cases every year. This issue will not only cause negative consequences to fund sustainability, but also to leave many labourers out of pension when they reach retirement age.

5. Implementation Administrative procedures: are complicated still, hinder the access of people to the scheme; Limited IT application in VSS system causes inconvenience in registration and management of the scheme.

5. Conclusion According to the recent actuarial assessment report done by the ILO: by the status quo, the pension scheme will have the total annual revenues equal to total annual expenditure by 2021 and all reserves exhausted by 2034.

6. Possible solutions  Increasing retirement age;  Replacement rate will be 45% if contributed 20 years, instead of 15 years;  Applying restrictions on lump sum allowance;  Applying same formulae for both public and private sectors for those who join the scheme from 2015 onwards.  Increasing the reduced benefits to 2% for every year of early retirement.