Voluntary Social Insurance in Vietnam Nguyen Thi Vinh Hoa Ministry of Labour, Invalids and Social Affairs
Outline • History of Social Insurance • Coverage of Social Insurance • Development of Voluntary Social Insurance • Challenges
History of Social Insurance in Vietnam • Social Insurance Policies are of high importance and receive a lot of attention from the Party and the Government. • The coverage of social insurance in Vietnam used to focus on only civil servants and armed forces’ employees. • Since 1995, the coverage was extended to enterprises with at least 10 employees. • Since 2003, the coverage was extended to employees with employment contracts of 3 months upward • Since 2005, the coverage was extended to employees working for cooperatives, ward/communes
Coverage of Social Insurance in Vietnam Source: Vietnam Social Security
Coverage of Social Insurance in Vietnam • The participation in the social insurance is low • Participants are mainly employed in the public sector and foreign owned enterprises and joint-ventures. • Although the number of non-public sector workers contributing to social insurance is increasing, only 20% of them participate in the social insurance system. • A very large share of informal sector workers, especially farmers are uncovered by social insurance.
Development of voluntary social insurance • The Survey on demand of informal workers for participation in social insurance carried out by MOLISA in 2005 revealed strong desire for participation. • About 45% of interviewees want to have social insurance. • In 1982: Farmers Pension Fund, Farmers Support Fund, Old-age Pension Fund, Farmers Social Insurance Fund. • These Funds are operated in a voluntary basis from farmers and the support of the local authorities. • Contributions are made flexibly like: rice (in-kind) and money • The benefit levels are somehow determined according to the contribution levels.
Farmers Pension Fund in Ha Tay • The Fund was founded in 1986 in 67 communes in Ha Tay province with the voluntary contributors who were members of cooperatives. • As of 2004, the Fund has 29,000 contributors with 4,000 monthly receivers with 7 kg of rice/per head per month, and the surplus was VND 12.9 billions. • At present, nevertheless, this Fund is suspended for the benefits were too low, not attractive enough to new participants.
Farmers Pension Fund in Nghe An • The Fund was established in 1999 by Nghe An People’s Committee. • Members are workers of more than 16 years of age, not covered by the mandatory social insurance and permanently reside in Nghe An. • The minimum contribution level is VND10,000 per head. • For those who nearly reach the age of 60, they can contribute an amount for the whole 20 years to be eligible for a monthly pension. • If becoming the member at the age of above 45 for man and 41 for woman, he/she has to pay higher premium • The Farmers Fund pays out pension, lump sum and death benefits.
Farmers Pension Fund in Nghe An • Monthly pension shall be computed basing on premiums plus interest earned during contributory period then divided by 120 (months), as in the following formula: B + M - C P = -------------- 120 • The total value of contributions is aggregated and converted at the time to receive pensions, it shall be computed as: (m + 1)n - 1 T= (B - C) --------------- m • Thus, total interests are calculated: M = T - B
Farmers Pension Fund in Nghe An A lump sum shall be payable for one of the following cases: • Moving to another place or in economic difficulties • Reaching eligible age but not reaching eligible years of contribution • Upon the death of the member. • Economic difficulties and prepare a paper requesting for a lump sum if it is certified by local authorities.
Farmers Pension Fund in Nghe An The entitlement of a lump sum is based on number of contribution years, and shall be calculated as below: • A contribution period of 1-3 years shall be computed as 100% of the contribution. • A contribution period of 4-10 years shall be computed as 110% of the contribution. • A contribution period of 11-15 years shall be computed as 125% of the contribution. • A contribution period in excess of 16 years shall be computed as 145% of the contribution. The survivorship lump sum is calculated based on the length of contribution and the number of years enjoying the pension, if any
Farmers Pension Fund in Nghe An • Farmers social insurance has been carried out in 305 out of 325 communes in 11 districts in Nghe An province with 84,091 members, of whom 40 are monthly pensioners and 1,400 are lump sum receivers. • And 92.5% of benefit receivers of Farmer Social Insurance are females. • Presently, the Fund has VND 80.6 billions.
Farmers Pension Fund in Nghe An • Low level of benefits to generate necessary level of long-term savings • Inability to gain real investment rate to cover administrative costs in the long run, • The Fund shall be surely insolvent in case of natural calamity or bad harvest, farmers tend to be paid lump sum benefits. • The formula of monthly pension is inadequate, not taking into account CPI and life expectancy,
Institutionalizing Voluntary Social Insurance • Perspectives of the Party and State • Socio-economic development • Structure of the labour force
Institutionalizing Voluntary Social Insurance • Social Insurance Law was endorsed by the National Assembly on 29 September 2006 • The Law consists of 11 Chapters with 141 Articles, which stipulate Compulsory Social Insurance (be effective from 1 January 2007), Voluntary Social Insurance (be effective from 1 January 2008), and Unemployment Social Insurance (be effective from 1 January 2009).
Voluntary Social Insurance • Old-age Pension • Survivorship benefit
Voluntary Social Insurance • Fund management: • premium is equivalent to 16 per cent of the wage • from 2010 the premium will be increased by 2 per cent of the wage every 2 years until it reaches 22 percent • Range of contribution is bounded by 16 per cent of the minimum wage to 20 times of the minimum wage • flexible payment schedule: monthly, quarterly… • the annual management fee from investment return • real value of contribution is ensured by having CPI added
Challenges • Voluntary social insurance is a new scheme difficult management, collection of premiums giving the nature of possibly mobile workers • The minimum level of contribution is currently rather high exclude people under the poverty line • The system requires at least 20 years of voluntary participation excluding people are close to the retirement age • Which agency to manage the fund? • Types of investment of the fund • Need for social security cards and electronic management system to ensure the portability
Challenges • How to set CPI in the formula for the pension • Need for coverage of other work–related issues like accidents, sickness and maternity • More clarification between the compulsory and voluntary social insurance participants