Reduce the rate of benefits or increase the level of social insurance contributions?

Early retirement in the context of an aging population with increasing life expectancy is and will be a heavy burden for the social insurance fund. The above comment was made by Mr. Pham Truong Giang, Director of the Department of Social Insurance, Ministry of Labor, Invalids and Social Affairs at the International Workshop “Reforming social insurance policies – international experience and recommendations for Vietnam” organized by the Ministry of Labor, Invalids and Social Affairs and the International Labor Organization (ILO) on November 29.

Currently, the average retirement age is 54.1 years old, of which men are 55.6 years old (compared to the regulation of 60 years old) and women are 52.6 years old (compared to the regulation of 55 years old). Meanwhile, according to him, the average life expectancy of current retirees is 78.8 years old. Thus, the average time of enjoyment for each person is about 24.7 years.

Many solutions are being proposed to stabilize the social insurance fund. Illustrative photo

However, according to calculations by the Ministry of Labor, War Invalids and Social Affairs, social insurance contributions for 28 years are only enough to pay for 8 years.

"So who will bear the 'burden' when the average benefit period is 24.7 years?", he asked. Meanwhile, according to Mr. Giang, the principle of social insurance premiums is that to receive 20 years, workers must pay for 40 years.

Compared to other countries such as Japan, Korea, Thailand, China, Indonesia, etc., Mr. Giang said that the current ratio between the total benefit and the total contribution in Vietnam is too high. Specifically, the total contribution is currently around 22% but the benefit is up to 75%. Therefore, the representative of the Social Insurance Department said that to balance the fund, it is necessary to reduce the benefit rate or increase the contribution level, and extend the working time.

He also said that the elderly population is increasingly making up a large proportion. In particular, the rate of population aging in Vietnam is among the fastest in the world. Population forecasts show that in the period 2009-2049, the proportion of the retired population (calculated according to current regulations) will increase from 10% to over 20%.

"The single-tier social insurance model, with the minimum participation period of 20 years to receive retirement benefits, is too long. The pension calculation formula does not reflect sharing. The contribution period is short but the benefits are long...", said Mr. Giang.

Deputy Prime Minister Vuong Dinh Hue requested that agencies and ministries need to carefully study and specifically analyze social insurance policies of other countries to avoid lessons of failure. Photo: Chinhphu

Speaking at the workshop, Deputy Prime Minister Vuong Dinh Hue requested relevant agencies to focus on overcoming shortcomings, limitations and weaknesses, and continue to promote social insurance policy reform as an important tool contributing to the effective implementation of the Party and State's social security and sustainable development policies.

“Many countries have successfully reformed social insurance, but many have also failed and become a heavy burden on the national financial and monetary systems, including developed countries in the OECD. Therefore, we need to carefully study and specifically analyze the experiences of other countries and the conditions of application to avoid lessons of failure and apply lessons of success,” said the Deputy Prime Minister.

Mr. Nuno Meira Simoes da Cunha, Social Security Expert, East, Southeast Asia - Pacific region, also proposed4 options to reform Vietnam's social insurance system, in which all solutions need to increase the retirement age.One is to increase the retirement age to 65 for both men and women. However, according to him, this plan needs to be implemented step by step, increasing one age each year, starting from 2018.

Option two is to increase the retirement age while reducing the benefit rate with an annual accumulation rate of 1.5% for one year of contribution over 40 years of conversion.

The third option is to increase the retirement age, reduce the benefit rate by adding 1% of the insurance salary to the annual insurance contribution rate, and apply a universal pension at a level equal to 50% of the minimum wage in the public sector.

The fourth option is to raise the retirement age, introduce a defined contribution pension (NDC) and a universal pension at 50% of the minimum wage in the public sector. He also proposed that the government create a voluntary insurance scheme for those who want better protection and can afford to make high contributions.

Social insurance arrears affect the rights of thousands of workers. Illustrative photo.

Mr. Dang Thanh Long, Director of the Institute of Public Policy, National Economics University, also commented that in Vietnam's social insurance fund, only the pension and death benefit funds can go bankrupt. The funds with other insurance benefits are relatively stable and can accumulate in the future.

He also pointed out the problem leading to this risk is the imbalance between contributions and benefits. "No country applies a contribution rate of 22% but benefits up to 75%", he emphasized, at the same time saying that changes need to be made but must be implemented step by step, must build a multi-layered insurance system, using one area to compensate for another.

The option of increasing the retirement age is also one of the proposals of this expert. According to him, the adjustment to increase the retirement age makes some people worry that it will lose job opportunities for young people. However, he believes that this is not a concern because the two age groups have differences in occupations, labor structure, etc.

He also proposed establishing a group of experts to regularly analyze the financial situation of social insurance funds and pension funds. He said that in the past, assessments were only conducted once every few years, or even up to ten years, but that was too long and needed to be done more frequently.

Mr. Nguyen Van Linh, Lecturer of the Insurance Faculty, National Economics University, said that the current trend of social and commercial insurance in the world is getting closer together. In Vietnam, there are currently 6 commercial insurance companies participating in pension insurance with nearly 2 million contracts. Therefore, compulsory social insurance must expand the coverage of voluntary types.

However, according to him, the current organizational model of social insurance is still inadequate, there is only a central, provincial, and town network but no commune or ward network. Meanwhile, the consulting network of commercial insurance companies reaches all the communes and wards. He cited that the entire social insurance industry currently has 21,000 people but a commercial insurance company alone currently has 35,000 agents.

However, this expert also admitted that increasing the payroll in the current context is impossible. He said that if each commune and ward had one more insurance officer, the number of people on the payroll would increase by about 12,000, causing a burden on the budget. Therefore, he said, we should reform according to the general agent model at the provincial level and give them the right to decide on personnel recruitment, business targets, etc.

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According to VNE