In 2020 and 2021, the number of people who sought lump sum payouts were 761,000 and 863,000, respectively. As such, nearly 5 million people chose lump sum benefits in 2016-2022.
Under current regulations, workers can only withdraw social insurance benefits after one year of unemployment. The figure is expected to continue to rise this year, following the worker layoff wave in industrial zones triggered in H2 2022.
In the short-term, this shows the failure of the welfare system which serves as support for workers in difficult situations, despite great efforts over the last two years of the pandemic.
Using lump sum benefits means using income designated for the future for present expenses.
In the long term, it can create difficult problems when Vietnam begins entering the period of an aging population.
The social security system, especially social insurance, may not be able to bear the welfare costs for an older population if it continues to operate as it is doing at present.
With millions of workers leaving the social security system, ensuring sufficient income for old age would be a great challenge.
However, policymakers understand that it is important to lay a foundation for a sustainable society.
According to the United Nations Population Fund (UNFPA), under one scenario, the population aged 65 or higher will increase from 7.1 percent in 2014 to 18.1 percent by 2049, or 20 million people.
With 65 percent of older people without pensions as currently seen, there would be a welfare burden on the state and the society.
The General Statistics Office’s (GSO) mid-term population census found that up to 16.4 percent of people aged over 80 live alone. The figure is even more worrying if noting that 1/3 of them have very low living standards.
The more worrying problem is that Vietnam may ‘get older before getting rich’. In other words, the country won’t be able to accumulate enough financial capability for the aging period, when economic growth and the labor force begins to decrease, while expenses on social security increase rapidly for both the state and households.
The proportion of the dependent population who are old people in Vietnam is now the third highest in ASEAN, about 10 percent, and the figure is predicted to double in the next 20 years.
The proportion of the population of working age has considerably decreased since 2014 and the trend will continue until 2042, when it will no longer account for the largest proportion of the total population.
This requires policymakers to take action immediately to prepare for changes in population structure. However, except for verbal instructions and general resolutions, Vietnam still doesn’t have any clear plan on this issue.
Social insurance, the most important social security system which can help adapt to aging, has had many amendments. The new system covers just 38 percent of the labor force, while the number of workers demanding lump sum benefits has increased sharply after the pandemic.
The Ministry of Labor, War Invalids and Social Affairs (MOLISA) said by 2034, when the country ‘officially gets old’, the social insurance fund won’t be large enough to pay without contributions from the state budget. With a social insurance fund system at the highest contribution level in Asia and a scale of $36 billion, this is unacceptable.
Restructuring labor and switching to industries with higher productivity remains a dream, while current policies are still ‘loyal’ to labor-intensive sectors.
And this is not only about productivity: a worker with a high level of skills, working in an industry with high added value, will be less likely to lose a job. But unskilled workers will be more likely to lose their jobs as they age.
The GSO’s report on labor and employment showed that the number of non-official jobs is by far higher for the ages of over 35, 47% for workers aged 24-35, 53 percent for those of 35-40 years old, 59 percent for 40-44 years old and 63 percent for 44-55 years old.
For the workers who become redundant at the age of 35, seeking new jobs is an extremely difficult thing. They will have to earn their living in the unofficial sector with lower incomes.
Nguyen Khac Giang