Is participating in social insurance more 'losing' than saving?

(Baonghean) - Recently, on some forums and Facebook social network accounts, information has been spread that paying social insurance to receive pensions is much more "losing" than saving.

This information makes many workers confused, especially non-state workers.

» Should I wait to receive my pension or receive social insurance at once?

Baseless comparison

Ms. Hoang Thi Linh (31 years old) in Le Mao ward, Vinh city works as a tailor. Many years ago, life was difficult, she dropped out of school early to work for hire to help her parents raise her younger siblings. Recently, after getting married and saving some capital, she and her husband opened a tailor shop right at home. The initial income is stable but they are still very worried about the future when they reach retirement age. The couple is considering buying voluntary social insurance to have a pension later.

However, before they could go to the ward People's Committee to find out about buying social insurance, they heard from their neighbors that someone "on the internet" advised them not to buy social insurance because they would suffer heavy losses in the next few decades, and that saving money would be much more profitable! Linh wondered: "My husband and I don't know what to do. Honestly, our economic conditions are limited, so hearing that saving money would be more profitable seems to be a good idea."

Pension payment in Linh Son commune (Anh Son).

Cases of confusion due to conflicting information like Ms. Hoang Thi Linh’s family are not rare. To understand the cause, we “searched” for “the problem of loss and gain between social insurance and savings” that many people shared widely on the social network Facebook.

The “problem” is as follows: “Assume your salary is 5 million VND, then you pay 8% of your salary, the company pays 18% of your salary. Each month, you and the company pay 26% of your salary = 1.3 million VND. In year 1, you have 13 million VND; in year 2, you pay an additional 13 million + 13 million in year 1 + 6% of the interest of 13 million in year 1 = 26,780,000 VND. In year 3, you have 41,386,800 VND… You start working at age 25, retire at age 65. You pay social insurance for 30 years (assuming you stop working for 10 years). By year 30, you have 1 billion 27 million VND. The monthly interest is 5.135 million VND. But you only receive from social insurance 75% of your salary = 3.75 million VND/month. So, you do not receive enough interest and lose the principal.”

In response to this incident, many financial experts have spoken out to refute, affirming that the "profit and loss calculation" proposed by anonymous Facebook accounts has no basis in reality and does not accurately reflect the regulations of current social insurance policies.

The Policy Implementation Board, Vietnam Social Security analyzed that in this calculation, the anonymous author calculated the amount of social insurance contribution at the rate of 26%, which is unreasonable, because the total contribution rate above includes 3% contribution to the sickness and maternity fund, 1% contribution to the occupational accident and disease fund and 4.5% contribution to the health insurance fund. These are short-term funds, with a high risk-sharing nature between healthy people and sick people, people with occupational accidents and diseases.

In cases where workers suffer from illnesses that require long-term treatment, illnesses that require high technical costs, work accidents, or illnesses that result in a high rate of loss of working capacity, the amount of money to pay for such risks is extremely large. Therefore, when comparing, the contribution rate to the pension and death fund should only be 22%.

Next, the argument that paying 1.3 million VND per month means paying 13 million VND per year is even more wrong, because isn't there only 10 months in a year?

Similar to the previous calculation, calculating the monthly pension simply as 75% x 5,000,000 VND = 3,750,000 VND (not applying the conversion coefficient according to CPI) is not in accordance with the provisions of the social insurance policy and does not fully reflect the benefits that employees receive.

Similarly, comparing pensions received with savings interest without adjusting pensions according to the cost of living index and economic growth does not accurately reflect the provisions of the policy.

Social insurance ensures long-term security

Mr. Nguyen Quang Quyet - Head of Regime Department, Social Insurance of Nghe An province emphasized that the biggest difference between social insurance and bank savings lies in the purpose: social insurance is a non-profit insurance type, while bank savings aim to make a profit and the interest is taken from the savings deposit itself.

When making a deposit, participants receive an interest amount according to the term of the deposit, after about 20 - 30 years, the value of the principal amount remaining is very little. This is the opposite of social insurance where social insurance contributions are returned by adjusting the increase according to the consumer price index (CPI) each year and become the basis for calculating pensions.

In addition, the Law stipulates that the Social Insurance Fund is protected by the State, while others can still go bankrupt. For the Social Insurance Fund, even though the currency depreciates, the State will always promptly adjust to compensate for the benefits of Social Insurance participants. Therefore, pensioners always have a stable salary throughout their lives, without the risk of saving.

People complete their retirement records at Vinh City Social Security. Photo: PA

In fact, Vietnam's pension fund is being evaluated by international financial experts as "low contribution - high benefit", workers enjoy many benefits from participating in social insurance.

With the current regulations on social insurance contributions and benefits, the accumulated amount of money (including interest) for a worker participating in social insurance is only enough to pay for his/her pension for 8-10 years. Meanwhile, with the life expectancy of those living after the age of 55 for women and 60 for men currently being about 20 years, it is clear that the benefits that workers enjoy are very large, and the State is having to pay for that difference from the budget.

In addition to pension benefits, retirees are also entitled to health insurance, with the Social Security Fund paying for the health insurance card (at a rate of 4.5% of the pension level); upon death, the person in charge of the funeral is also entitled to a funeral allowance equal to 10 months of the basic salary at the time of the employee's death, and relatives are also entitled to a one-time death benefit equal to at least 3 months of the current pension. In case relatives are eligible for monthly death benefits, a maximum of 4 allowances is given, in which young children are entitled until adulthood, and elderly parents are entitled until death.

Worrying and calculating for the future when you are old is an obvious psychology of every person. Except for the case of having a surplus economy with many options, in the case of limited financial conditions, choosing to participate in social insurance to receive pension and health insurance for your life when you are old is the most effective choice.

Phuoc Anh