Viet Nam may run out of funds for pensions

HA NOI — The International Labour Organisation (ILO) in Ha Noi has suggested that comprehensive reforms are needed to fix Viet Nam’s pension scheme, as the country will soon no longer be able to pay pensions.

According to an ILO report launched yesterday, if nothing changes, the national pension fund may be depleted in 17 years.

“The pension scheme will start running deficits from 2020 and the reserves of the fund could be totally depleted by 2029, causing big problems for Viet Nam’s economy,” said ILO Viet Nam expert Carlos Galian.

Statistics from the Ministry of Labour, Invalids and Social Affairs (MoLISA) indicate that only one-fifth of the workforce of 50 million contributes to the pension scheme – a “modest level” compared to the rest of the world.

Pension coverage may increase in the short term as Viet Nam is in the demographic bonus period with those at working ages accounting for 58 per cent of the population, according to the ILO, but steady population aging due to better life expectancy and declining fertility rate would present a problem.

The present public pension scheme is characterised by low retirement ages – – 55 for women and 60 for men, with special early retirement arrangements for some groups in the workforce.

The pension scheme also faces a fundamental problem in the imbalance of benefits between civil servants and private-sector workers, mainly caused by the difference in reference wages for pension calculation. The MoLISA admitted that the replacement rate (percentage of wages claimed back during retirement) for private-sector employees is only about half of that for civil servants.

“The good news is that the National Assembly has scheduled the Social Insurance Law amendment by the end of next year and that the Government acknowledges deep reforms are required,” said ILO Viet Nam director Gyorgy Sziraczki. “It’s critical for Viet Nam to balance its pension fund.”

“We definitely need to start a pension scheme reform right now but it should be done gradually,” said Tran Thi Thuy Nga, director of MoLISA’s Social Insurance Department. “Sharp changes will not be feasible.” — VNS

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Source: ILO Press Release: Viet Nam’s pension scheme reform needed: ILO Report, Aug 2, 2012