Not rich yet old

Flood of social insurance withdrawal

In 2 years (2020 and 2021), for the first time, the number of people withdrawing insurance at one time exceeded the number of participants, 761 thousand and 863 thousand people respectively. Including the whole year of 2022, nearly 5 million people withdrew at one time in the period 2016-2022.

With the regulation that workers can only withdraw social insurance after 1 year of unemployment, this number will certainly not stop this year, when the wave of layoffs in industrial parks increases sharply in the second half of 2022.

The above phenomenon says a lot. In the short term, it shows the failure of the social security system to support workers in difficult times, despite many policy efforts in the past 2 years of the pandemic. Using a lump sum insurance money is using future income to spend on present expenses. As some workers shared, if there is not enough food to eat now, who dares to think about the future?

In the long term, it poses difficult problems as Vietnam begins to enter the aging population stage.

On the one hand, the social security system, especially social insurance, will not be able to bear the welfare costs of an “aging” country if it continues to operate as it is now.

On the other hand, for millions of workers who have just stepped out of the social security system, ensuring enough income to save for old age is a big challenge. For them, it is a story of 20 years from now that not everyone has the energy to care about.

But for policymakers, this is a pivotal issue in ensuring a sustainable and safe society.

Including the whole year 2022, nearly 5 million people withdrew at once in the period 2016-2022. Photo: Thanh Tung/VietNamNet

According to the United Nations Population Fund (UNFPA), in the average scenario, the population aged 65 and over will increase from 7.1% in 2014 to 18.1% in 2049, equivalent to 20 million people.

With 65% of the elderly not having a pension as it is now, the social security burden for the state and society will be enormous. According to the General Statistics Office’s mid-term Population Census, up to 16.4% of people over 80 years old are living alone. This figure would be even more frightening if we knew that 1/3 of them have “low living conditions”.

What is more worrying is that Vietnam will “get old before it gets rich”. Simply put, we will not accumulate enough to prepare for the aging period, when growth declines, the labor force begins to decline, while social security costs increase rapidly for both the state and households.

Vietnam’s elderly dependency ratio was the third highest in ASEAN, at around 10% in 2015, and is expected to double in the next 20 years. The working-age population has been declining since 2014, and this trend is expected to continue until 2042, when this segment will no longer account for the largest proportion of the total population.

That prospect requires policymakers to act now to prepare for demographic shifts. But beyond verbal directives and joint resolutions, we do not really have a clear plan.

Social insurance, the most important social security system to adapt to aging, is still struggling after many revisions. Currently, the system only covers 38% of the workforce, while the number of people applying for withdrawal has increased sharply after the recent pandemic.

Urgent steps

The Ministry of Labor believes that by 2034, when we officially “age”, the Social Security Fund will not be able to pay without contributions from the state budget. With a Social Security Fund system with the highest contribution rate in Asia and a scale of about 36 billion USD, this is unacceptable.

The worrying thing is that Vietnam will “get old before getting rich”. Illustration photo: Hoang Ha

Shifting the labor structure to higher productivity sectors remains a dream on paper, while current policies remain loyal to cheap labor.

It’s not just a productivity story: a highly skilled worker working in high-value-added industries is less likely to lose his job. For low-skilled workers, being “squeezed and thrown away” by businesses when they pass their prime is no longer an isolated phenomenon.

The General Statistics Office's Labor and Employment Report shows that the number of informal jobs is significantly higher in age groups over 35. While the 24-35 age group has an informal employment rate of 47%, this rate is 53% for the 35-40 age group, 59% for the 40-44 age group, and 63% for the 44-55 age group.

Population of 100 million and the risk of 'getting old before getting rich' Vietnam will welcome its 100 millionth citizen and is in the golden population period lasting from 2007 to 2039. Is the risk of 'getting old before getting rich' the fate of most of us?

For the “unemployed at 35”, finding a new job is extremely difficult. They will have to make a living in the informal economic sector with lower income, while the burden of “young people relying on their fathers, old people relying on their children” from their families increases.

If no other company accepts them, it is not surprising that most of these workers choose to withdraw their insurance in one lump sum. The alternative, waiting 25 years to receive a pension with an uncertain life, exists only in the policy makers' hypothesis. Most of them will enter retirement with little or no savings.

Looking further, labor market reform is part of the need to reform the entire economy, with the goal of helping Vietnam escape the middle-income trap.

Our country's per capita income is currently equivalent to 40% of the world average, far from the upper middle income level. That income level cannot guarantee an aging society.

The pressure to “get old before getting rich” should therefore be part of the motivation to continue institutional reform, open up the business environment, and encourage the private economy to develop and get rich.

Along with the changes in the "aging" strategy, it is necessary to learn more from the experiences of countries that have been relatively successful in the population transition process.

In Asia, there is no better example than Japan, where 25% of the population is over 65, and this is expected to reach 40% by 2060. Despite its many problems, Japan has built an age-friendly society, a strong social security system, and an economy that is resilient to a shrinking workforce. Another example is Singapore, where a well-functioning social security system contributes greatly to the well-being of its workers.

Aging is a fate that every country must go through. But whether to prepare for old age properly or not is a policy choice. There is still enough time, but if we do not start today, an uncertain old age will await us in less than 20 years.