Phung Dac Loc, Secretary General of the Viet Nam Insurance Association, spoke with Thoi bao Kinh te Viet Nam (Viet Nam Economic Times) about a new voluntary pension fund.
Is it the right time to introduce changes to the pension system?
At present, the number of people benefiting from the compulsory pension fund are few while at the same time many others want to participate in a voluntary pension scheme. So I think this is a good time for us to start the voluntary pension fund to cater for that demand.
For Viet Nam, it is the right time for us to start the voluntary pension fund as our nation is now at the ideal stage to introduce it. As Viet Nam's Social Security is now stretched by both the rapid increase in the population, and an ageing population, partly due to and the better living conditions, more people have shown interest in participating in a voluntary pension fund. So the government has devoted more energy to the launching of a voluntary pension fund.
The new pension fund is a type of life insurance designed to provide additional income to an individual, or a group of people, retiring from work. In the case of the pension fund for a group of employees, the employers will pay the insurance fee for them. In return, the latter will receive their pension at the age of either 55 for women or 60 for men.
Debts owed by enterprises to the Viet Nam Social Security (VSS) have become a big concern for many people while the number of people participating in life insurance is decreasing. Do you think that in such a climate the voluntary pension fund will still attract many clients?
Under Circular 115, only life insurance companies with equity of more than VND1 trillion (US$47.62 million) would be allowed to implement this type of retirement insurance. In addition, they must deposit more than VND 200 billion ($9.5 million) to the voluntary pension fund without withdrawal to ensure their responsibility. I think the tight conditions imposed on the operation of life insurance companies are a firm foundation for the voluntary pension fund to operate successfully.
What are the differences between the mandatory pension fund and the voluntary pension fund?
There are five differences between the two funds:
First, in the voluntary fund, the participants are free to choose what type of product they want.
Second, it is up to the participants to decide the cash value policy they want to buy.
Third, the participants are entitled to decide the insurance terms they want.
Fourth, the participants are entitled to decide when they can withdraw their insurance money.
And finally, the participants can decide what form of contributions they will make.
I can say one of the benefits of the voluntary fund is the close link between the employees and employers, in terms of both industrial relations and the benefits for employees.
Compared with the mandatory pension fund, farmers, farm owners, self-employed workers and even public employees can participate. In a wider sense, if one person has a lot of money, he or she can buy the voluntary pension fund for many others.
Generally speaking, the voluntary fund is another form of life annuity that many life insurance companies already offer. Due to different reasons, these policies have not been good as expected. Do you anticipate that this voluntary fund will share the same fate?
I have to concede that the revenue from life annuity insurance policies in past years have failed to meet the set targets due to various factors, including inaccurate data on life expectancy and the uncertainty of interest rates.
In addition, the life insurance companies operating in Viet Nam have to follow Vietnamese law – so they can only offer annuity policies within Viet Nam where there is little guarantee of high interest rates for long term investment products.
With an objective to provide more benefits to retired workers/employees the government has agreed to give the green light to the establishment of the voluntary insurance fund.
And, of course, the fund has to operate under Vietnamese law so all monies owed to the participants are protected by these laws. Potential clients should base their confidence on this government support, which offers a solid foundation to the scheme. — VNS