According to WB experts, the official pension system is facing major challenges which will become increasingly serious when the aging process accelerates. Currently, the population aged 65 and older in Vietnam is 6.5 million, but the number is expected to increase by 3 times to 18.4 million by 2040. In 2014, Vietnam made reforms but they were not fast and powerful enough to restore financial balance of the retirement fund. Before the amendment, economists forecast that the fund would be in deficit in the early 2020s and the reserves will be exhausted by mid-2030.
However, after the 2014 amendment, the main factors leading to the imbalance to the fund were unmodified (like retirement age) or not modified enough (such as premature retirement provisions). Because of this, the fund cannot recover on a sustainable basis.
Therefore, the retirement fund is still likely to be in deficit in the 2020s.
Besides, the social pension is very low, only equivalent to 10% of the average income, and there is only a small percentage of the population aging from 65 to 79 and only those aged 80 years or older benefit from social pension.
The official pension situation is more complex. The benefit rate is relatively generous, currently prescribed at 3% for women for each year of contribution and 2.25% for men. Compared to international standards, this is a very high rate and unsustainable in terms of finance.
Despite the high rate, the practical benefit is lower because most people only contribute based on the basic salary, which is usually the minimum wage.
“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 Associate Expert Carlos Galian.