Will the new pension calculation reduce pensions?

(Baonghean) - Recently, public opinion has been stirred up by changes in the way pensions are calculated according to the 2014 Social Insurance Law, effective from January 1, 2018. Nghe An Newspaper reporters had an interview with Mr. Le Truong Giang - Director of Nghe An Provincial Social Insurance to clarify this issue.

Illustration photo.

Add 5 years of insurance

PV:Sir, from January 1, 2018, the Social Insurance Law stipulates a roadmap to gradually increase the social insurance payment period to achieve a maximum pension rate of 75%. Many workers are wondering and do not understand this roadmap?

Mr. Le Truong Giang:Before the changes in social insurance policy, we share the concerns and questions of employees. To clearly understand these changes, employees can simply understand as follows:

For retired female workers, the monthly pension rate is calculated at 45% corresponding to 15 years of social insurance contributions, then 2% is added for each additional year of social insurance contributions; the maximum rate is 75%. To reach the maximum percentage, female workers must have 30 years of social insurance contributions instead of 25 years as at present.

For male workers, to enjoy the 45% rate, from 2018, they must pay 16 years; then each year, they must pay 1 more year of social insurance, until 2022, they must pay 20 years of social insurance to enjoy the 45% rate. To reach the maximum rate of 75%, from 2018, male workers must pay 31 years of social insurance, from 2019, 2020, 2021, they must pay 32 - 34 years of social insurance, and from 2022 onwards, they must pay 35 years of social insurance, instead of 30 years as at present.

PV:Many workers believe that the pension calculation formula has been maintained for many years without any problems. Why is there a change in the calculation method, sir?

Mr. Le Truong Giang:We must understand that the principle of social insurance is contribution - benefit. Contribute more, receive more, contribute less, receive less. Accordingly, the pension calculation formula must also ensure the above principle.

The idea that the pension calculation formula has been implemented as before is not a problem is incorrect. Since 2016, the compulsory social insurance contribution rate is 22% (of which the employer contributes 14% and the employee contributes 8%), the total pension according to the social insurance contribution rate is only equivalent to 39.6% (22%/month x 12 months x 15 years), which means that 15 years of social insurance contribution corresponds to a pension rate of 39.6%, but the pension calculation formula remains the same at 45% of the average salary used as the basis for social insurance contribution. This causes an imbalance in the fund, and the State always has to compensate the budget to pay for the above difference.

In addition, according to the current calculation (before January 1, 2018), female workers who are 55 years old with 25 years of social insurance contributions, and male workers who are 60 years old with 30 years of social insurance contributions are entitled to 75% of their pension, but the total amount of social insurance contributions can only be paid within 9-10 years, while people's life expectancy is 20 years (meaning women are 75 years old, men are 80 years old).

People of Linh Son commune (Anh Son) receive pension. Photo: PV

Based on the principle of contribution - benefit, high contribution, high benefit and low contribution, to overcome the imbalance of the Social Insurance Fund, changing the way of calculating pensions is an inevitable trend. The State cannot always have to compensate the budget to pay for the difference, the State only protects when an incident occurs to ensure social security for all people. Changing the way of calculating pension rates is to ensure a stable and sustainable pension fund.

Should I retire early to "avoid" the new regulations?

PV:When the new regulation comes into effect, there will be many cases where employees are old enough to retire but have not paid the maximum insurance premium of 35 years for men and 30 years for women. How to solve this problem, sir?

Mr. Le Truong Giang:In case of reaching retirement age but not having paid the maximum insurance premium, the employee can pay insurance voluntarily to receive a maximum pension equal to 75% of the average monthly salary for insurance premium. Even if for some reason the employee is short of both retirement age and the maximum insurance premium, he/she can continue to pay the remaining amount quarterly, annually or every 6 months in the form of voluntary insurance and wait until reaching retirement age to receive the pension.

The voluntary insurance contribution rate is 22% of the monthly income, which is decided by the employee, but the lowest is equal to the poverty line in rural areas and the highest is 20 times the basic salary. If possible, in my opinion, employees can pay voluntary insurance at the highest possible level to receive a high pension because the pension is calculated based on the average of the entire monthly salary for insurance contribution.

PV:Faced with this change, some workers are confused, thinking that their benefits will be affected. Even now, many workers tend to want to retire early because they think that retiring before January 1, 2018 is more beneficial than retiring after January 1, 2018. Can you explain more about this issue?

Mr. Le Truong Giang:Retirees in 2018 compared to 2017 who have met the contribution period requirement to receive a maximum pension of 75% are not affected by this new regulation.

For those who have not yet reached 30 years of social insurance contributions (for women) and 31 years of social insurance contributions (for men), their pension benefits will be slightly reduced. Specifically: in 2018, it will be reduced by 2% for men and 1% for women for each year of social insurance contributions from the 16th to the 25th year (previously, each year of social insurance contributions increased by 3%, but from 2018, it will only increase by 2%).

However, from 2018, with the higher social insurance contribution salary (the monthly salary subject to compulsory social insurance is defined as the salary, salary allowances and other supplements as prescribed by labor law), the average salary for calculating pension benefits will be higher in absolute terms; not to mention the adjustment of the inflation coefficient as the basis for calculating the social insurance contribution amount prescribed by the Ministry of Labor, War Invalids and Social Affairs and the adjustment of the basic salary of the Government.

On the other hand, for those who retire early, 2% will be deducted for each year of early retirement. The percentage of pension benefits reduced due to the new calculation method is not equal to the percentage deducted for early retirement. Therefore, employees retiring in 2017 will be at a disadvantage compared to those retiring from 2018 onwards.

The reason is that the pension rate does not reach the maximum of 75%, which will greatly affect the income of workers because pensions are received for a long time. Some new regulations on pension regimes under the Social Insurance Law 2014 have an impact on some subjects as analyzed above.

Employees need to compare with their specific case to consider and decide. Because pension depends on many factors such as: gender, age, social insurance contribution period, social insurance contribution salary, pension receiving time, working conditions, so not everyone retiring in 2017 will have more advantages than those retiring from January 1, 2018 onwards.

PV:Thank you!

PV

(Perform)