VietNamNet Bridge – The Viet Nam Social Security Fund (VSS) could start showing a deficit by 2021 and run out of money by 2034 if no reforms were made, according to the International Labour Oraganisation (ILO).

The Viet Nam Social Security Fund (VSS) could start showing a deficit by 2021 and run out of money by 2034 if no reforms were made, according to the International Labour Oraganisation (ILO).— Photo dddn

The warning was given in an ILO report on actuarial valuation of the public pension scheme of the fund, which was released at a workshop on Thursday, Aug 22.

It provides a financial projection of the present public scheme and analyses possible reforms that could increase the fund's sustainability.

Currently, the VSS scheme covers about 20 per cent of the labour force.

The present public pension scheme of the VSS is characterised by low retirement ages, especially for females.

A steadily ageing population is emerging due to an increase in longevity and a decline in fertility, according to the report.

Based on the conservative assumption that the VSS coverage rate will rise to around 30 per cent of the labour force in 50 years, it is projected that the fund will run out of cash.

However, reform of the Social Insurance Law is expected to get the green light from the National Assembly next year, improving coverage for workers and ensuring the fund's financial sustainability.

The VSS is meant to cover all Vietnamese citizens with employment contracts of three months or longer, but enforcement remains a challenge. At present, only one fifth of the total workforce has social insurance.

ILO Viet Nam Director Gyorgy Sziraczki asks the Government, employers and workers need to work together urgently and find the right balance to ensure pensions now and in the future.

Despite an increase in compulsory contributions to VND89.6 trillion (US$4.2 billion) last year from VND6.3 trillion ($285 million) in 2001, only 47 per cent of all registered enterprises contributed to compulsory social insurance in 2010.

Viet Nam realised it was entering an ageing phase when people aged over 60 accounted for more than 10 per cent of the total population in 2012, five years ahead of predictions.

With fewer young workers in the future and a generous pension formula, the pension fund will be in jeopardy unless urgent measures are introduced in the reform.

To ensure the fund's sustainability, the report said Viet Nam should gradually increase the retirement age to 65 for both men and women, and rationalise the pension formulae.

However, retirement age reforms must be done slowly so that they do not impact on the labour market in the short term, according to Hiroshi Yamabana from ILO Financial and Actuarial Service.

The report stressed that reforms to address financial sustainability as well as the fairness of benefits between private-sector workers and civil servants must be implemented together.

"The country should also extend the coverage of the VSS pension scheme and support the development of supplementary, voluntary pension schemes," he said.

ILO Viet Nam Director Gyorgy Sziraczki said: "Social insurance reform is like driving a big boat: the captain cannot wait until the last moment. Rather, it should start turning even before seeing the obstacles in front. Unfortunately, the ILO report shows that the obstacle is dangerously close.

"Government, employers and workers need to work together urgently and find the right balance to ensure pensions now and in the future," he said.

Besides ensuring financial sustainability, other reforms were needed to protect workers after retirement by making sure that employers contribute to the social insurance fund based on total income instead of the basic salary in line with the new Labour Code, he added.

Deputy Minister of Labour, Invalids and Social Affairs Pham Minh Huan said that in the 2020-50 period, the rate of ageing in Viet Nam would be among the fastest in Asia.

Source: VNS