Director of HCM City's Social Insurance Agency Cao Van Sang told Nguoi Lao Dong (Labourer) Newspaper about the country's struggling pension fund and measures for resolving the problem.
The International Labour Organisation (ILO) has warned that Viet Nam could run out of money for the public pension fund in the next few years. Is that true?
I think it is. Social insurance collection for the pension fund is estimated to equal spending by 2023. After 2023, excess money from previous years will supplement any shortage. The country may run out of funds by 2034, when all funding sources are exhausted.
At the moment, we have a surplus of funding sources. Social insurance agencies can invest the extra money in safe channels such as banks and the State budget. The interest collected can be an additional source of funds.
Is this situation unique to Viet Nam?
I haven't seen a single country that did not face the same problem. Even developed Western countries face this problem. They usually deal with it by revising their laws to increase the retirement age or reduce pensions.
What causes this situation?
First, the money millions of people paid in social insurance fees prior to 1995 did not go to insurance funds. It went to the State budget instead and was not returned to the social insurance fund to pay the pension for those people later on.
Second, social insurance fees do not correspond to pension amounts. Rather, both the insurance fee and pension spending are calculated based on the minimum wage, which increased quickly in recent years. From VND120,000 in 1995, it has since risen to over VND1.1 million ($54.7). Labourers pay small insurance fees but receive much larger pensions.
Third, the current retirement age is lower than in other developed countries. Men retire at 60 while women retire at 55. In reality, the average retirement age is around 53. This means that some people receive pensions for more years than they pay insurance fees.
It's unreasonable to calculate someone's pension based on his or her average wage. Currently, pensions are calculated based on the average wage during the last five, six or ten working years (depending on the individual's line of work). Retired people who earned high wages during their last few working years receive equally high pensions.
What are urgent measures we can take to ensure money for the pension fund?
Increasing the retirement age would increase the number of unemployed people. First, the State budget needs to return the social insurance funds that labourers paid in the pre-1995 period to the pension fund. Next, pension calculation methods should be revised. Calculating the pension based on a labourer's last five working years is not reasonable.
During their last five years of work, individuals are paid at their highest-ever level, so paying the pension for many years this way exceeds the amount that they put in and threatens to cause a deficit.
We can also expand social insurance participation, which would bring additional revenue.
The Political Bureau of the Communist Party of Viet Nam Central Committee's Resolution 21 aims to have 50 per cent of labourers covered by social insurance by 2020.
But this measure can only be effective in the short term and increasing the number of retired people will cause bigger deficits in the pension fund in the future.
Finally, social insurance funds should be invested in the safest channels with the highest interest. — VNS