One-time withdrawal gives workers feelings of regret

For years, Hoang Thi Lan in Hoang Mai District, Hanoi, has been getting up at the crack of dawn to have enough time preparing sticky rice for sale in the market. At 60, without retirement pension or any subsidy, Lan lives on this traditional specialty xoi (Vietnamese sticky rice). Lan had had been a worker before she ceased to work and chose to receive a one-time social insurance allowance. Tens of millions of Vietnamese dong then was just enough for her to purchase a table set and a bicycle for the family. Speaking about the struggle over life challenges, Lan feels regretful. “At this age, I should relax and enjoy my retirement life but I’m still making ends meet. Life becomes much harder if I get sick,” said Lan. “Seeing my neighbour receive monthly retirement allowance, I wish that I had thought twice and did not withdraw the insurance benefits once.”

Having the same feeling as Lan, Bui Thi Hat, a resident in Nam Dinh Province, had been working for a garment company in the south for nine years and seven months. In 2021, when the COVID-19 broke out, Hat had to leave her job, so did her husband shortly after that. They returned to their hometown and became self-employed. In mid-2022, Hat applied for lump sum payout to cover their basic needs. “That amount of money was gone after months,” she said.

Now seeing their old parents have to work different jobs and live without retirement allowance and health insurance cards, Hat feels so regretful and wants to re-pay the withdrawn insurance allowance, but it is not in line with the law. Hat said she and her husband plan to apply for jobs in a company close their home so that they can rejoin the social security system.

Applying for lump sum payout, labourers deprive themselves of basic security rights

As a result of the COVID-19 pandemic, many labourers who lost and coped with financial difficulties decided to receive the one-time social insurance benefits to cover basic needs; concurrently, many others want the lump sum payout for the short-term benefits. For many, the lump sum payout which seems to “be large” but it is just sufficient to cover expenses in the long term, especially when people get old. This reality is worrisome, which affects not only the labourers’ rights and benefits but also the national social security when the country is bracing for an aging society.

Many choose one-time withdrawal, however, in the long term, they indirectly deprive themselves of their own social security rights. Illustrative Photo

Specifically, with the one-time withdrawal, the labourers’ rights and benefits will be markedly reduced:

First, labourers who are no longer covered by the State social security system will not be eligible for monthly pension allowance – a stable and helpful source of income at the old age. The pension allowance is adjusted periodically in line with the consumer price index and economic growth rate (the State has adjusted to increase pension allowance 17 times since 2003, with a rise from about 7.5 per cent to 9.3 per cent for each adjustment, depending on the target group).

Second, labourers deprive themselves of the chance to get free health insurance cards during the retirement period to enjoy health insurance benefits, health care in old age - the age most vulnerable to health problems.

Third, the employee’s relatives are not entitled to the survivor allowance when the employee dies. In case an employee covered by social insurance regime dies, the person who takes charge of the employee’s funeral is entitled to a lump-sum funeral allowance which equals 10 times the basic salary of the month when the person dies, and the employee’s relatives are entitled to monthly or lump-sum survivor allowance.

Fourth, the total amount of one-time social insurance withdrawal is less than the amount of paid social insurance premiums. Under the current regulations, the total level of payment to the retirement and survivor allowance fund must equal 22 per cent of employees’ monthly salary based on which social insurance premiums are based. In which, employees shall monthly pay 8 per cent and employers shall pay 14 per cent of the employees’ basic salary, and the total annual payment to the social insurance fund for an employee equals 2.64 months. If an employee chooses the lump-sum withdrawal, the rate of entitlement to lump-sum social insurance is calculated based on the number of years of payment of the social insurance premium, each year is calculated by 1.5 months of the average monthly salary on which social insurance premiums are paid for the years of payment before 2014; two-month average monthly salary paid for social insurance for the years of payment from 2014 onwards. As such, with the one-time social insurance withdrawal, the employee loses about 1.14 months of salary for each year they pay social insurance premiums before 2014, and about 0.64 months of salary for each year they pay social insurance premiums after 2014.

Fifth, if employees do not withdraw lump sum social insurance, the contribution to the social insurance fund will be their valuable “savings”, which will not be lost but managed by social security offices.

Labourers should reserve the period of social insurance premium payment rather than receiving the lump sum payout

In cases facing short-term difficulties (due to unemployment or reduced income), employees are entitled to have their period of social insurance premium payment reserved, and when better-off they can resume and continue joining the voluntary and compulsory social insurance mechanisms (any participant to the voluntary social insurance mechanism is partly supported by the State, with the support levels of 10 - 25 - 30 per cent based on the poverty line in rural areas).

Additionally, during the reservation of period of social insurance premium payment, if the employee unfortunately dies, the employee’s family is entitled to a lump-sum funeral allowance which equals 10 times the basic salary, and the employee’s family members, depending on specific conditions, are entitled to monthly survivor allowance (up to four people) until adulthood (if they are the employee’s children) or until their death (if the recipient is the employee’s wife, husband or father and mother who have reached the end of their working age and have no income or have income but less than the basic salary). In case the employee’s family chooses to receive the lump-sum survivor allowance, it is calculated as a one-time social insurance allowance.

Illustrative Photo

In order to encourage employees to continue joining the social security system to enjoy maximum long-term benefits when they retire and to avoid adverse losses from the lump-sum withdrawal, the current draft Law on Social Insurance (revised) supplements regulations to expand and increase benefits for employees to enable every employee to enjoy pension allowance.

In reality, many people having received the one-time social insurance allowance want to pay back to recover the years contributing to the social insurance fund and to be eligible for pension allowance, but the practice is not regulated by the Law on Social Insurance. Therefore, employees should think carefully before deciding to withdraw social insurance once.

Currently, if an employee unfortunately becomes jobless, s/he should register for unemployment allowance and financial support in vocational training to overcome difficulties with benefits as follows: Unemployment allowance equal to 60 per cent of the average monthly salary on which unemployment insurance premiums are based for 06 consecutive months before they become jobless; Health insurance benefits as regulated in case falling sick; Financial support in vocational training (with the maximum rate of VND1 million for person per month); Free job consultation and introduction; Further training for improved qualification and skills. When employees re-enter the labour market, they will continue paying social insurance premiums to enjoy pension allowance when they retire. In case they remain unable to pay insurance premiums, they can have the period of social insurance contributions reserved and then continue this process (either through compulsory and voluntary social insurance mechanisms) to be eligible for pension allowance.