Vietnam may run out of pension funds

The international labour organization (ILO) in Hanoi has suggested that comprehensive reforms are needed to fix Vietnam’s pension scheme, as the country will soon no longer be able to pay pensions.

  • Int’l experts share experience in social welfare implementation

According to an ILO report launched on August 2, if nothing changes, the national pension fund may be depleted in 17 years.

“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 expert Carlos Galian.

Statistics from the Ministry of Labour, Invalids and Social Affairs (MoLISA) indicate that only one-fifth of the workforce of 50 million contributes 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 age accounting for 58 percent of the population, according to the ILO, but steady population aging due to better life expectancy and declining fertility rate will present a problem.

“We might be okay now but the next generation will suffer,” said MoLISA Deputy Minister Pham Minh Huan, addressing a MoLISA-ILO workshop in Hanoi on August 2.

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.

The pension scheme also faces 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. The MoLISA admitted 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 2013 and that the Government acknowledges deep reforms are required,” said ILO Vietnam director Gyorgy Sziraczki. “It’s critical for Vietnam to balance its pension fund.”

International and domestic experts agreed that a gradual increase in retirement age is an essential way to improve the future financial balance between contributions and benefits.

Increasing the retirement age for both men and women to 65 could delay the depletion of the pension fund reserves for several years, said ILO expert Hiroshi Yamabana, but this method alone will not be enough.

The ILO report also recommended tightening up the early retirement provisions, reducing the pension replacement rate from the maximum of 75 percent of wages down to around 40 percent and ensuring greater equality between civil servants and private-sector employees.

However, some Government members argued that reforms should not be too harsh.

“We definitely need to start a pension scheme reform right now but it should be done gradually,” said Tran Thuy Nga, director of MoLISA’s Social Insurance Depart. “Sharp changes will not be feasible.”

VNA/VOV online