Retired people are often accompanied by illness, have no other income, their working power gradually dwindles, their living standards are reduced due to currency devaluation; and lives are extremely difficult. Meanwhile, in 2020 and 2021, due to the impact of the COVID-19 epidemic, pensioners and social insurance beneficiaries will not be able to receive a pay rise. In addition, people who do not participate in social insurance will not have a pension when they get old, which will be a burden on social security. Therefore, what needs to be addressed is how employees participating in social insurance can maintain the time of paying social insurance premiums so that they can have a pension book in their old age and not receive a lump-sum social insurance allowance.

To make that happen, on the one hand, it is necessary to propagate to people so that they would understand the benefits of pensions, not only in their monthly salary but also in health insurance when they get old. Therefore, the regulation for employees to receive more opportunities to have a pension by reducing the minimum period of social insurance premium payment for participants to enjoy pension from 20 years to 15 years, eventually 10 years, as many countries are applying is reasonable and encourages participation. The adjustment of pensions and social allowances is extremely urgent in the current period in order to promptly support difficulties for retirees, and at the same time narrow the gap between pensioners and retirees in different periods of time. The draft Decree on adjustment of pension, social insurance and monthly allowance is aiming to create a legal basis to solve this problem.

Limiting lump-sum social insurance allowance

Assessing the Draft amended Law on Social Insurance, Mr. Pham Minh Huan - former Deputy Minister of Labor, Invalids and Social Affairs, said that the proposals mainly focus on what has not been done but not the existing problems. Notably, a number of new policies proposed this time would face many challenges in implementation. For example, reducing the number of years of paying social insurance premiums to enjoy pension is a trend of many countries, but the Government often has accompanying policies such as creating high incomes, sustainable jobs, supporting on voluntary social insurance, etc.

Illustrative image (source: internet)

Besides, the enjoyment rate must also be calculated, as the current Law stipulates that the payment period must be at least 20 years, and receive at least 45% of the average monthly salary on which social insurance premiums are based; if shortened to 10-15 years, the rate may be only in the range of 20%-25%, leading to a pension of only about 1 million VND, which might still cause difficulties to ensure the life of employees.

Regarding the "tightening" of conditions for lump-sum social insurance allowance: In 2015, although the Drafting Committee proposed to limit the receipt of lump-sum social insurance allowance in Article 60 when amending the Law on Social Insurance, it has not been implemented as workers in some localities did not show positive reactions. The Government then had to propose to the National Assembly to amend this regulation in the direction that employees can either choose to enjoy lump-sum social insurance allowance or reserve to continue paying if conditions permit. “It is necessary to amend the Law to expand coverage, with a vision to universal social insurance, and increase the number of pensioners. Nonetheless, it will be a big challenge as the social insurance policy has many shortcomings and Vietnam has extremely fast aging population." - Mr. Huan emphasized.

According to Huan, it is advisable to restart the regulation on restricting receiving lump-sum social insurance allowance when amending the Law on Social Insurance. Accordingly, in the contribution to the social insurance fund (8% for the employee and 18% for the employer), the employee can withdraw 8% of the payment; the rest paid by enterprises will be kept in the social insurance fund for later payment when they reach the retirement age. What remains a question is the specific conditions and how to propagate so that the employees can reach a consensus and to avoid repeating the mistake of Article 60 like 6 years ago or the lesson learnt from Policy 176 on "receiving a whole". For example, employees who want to withdraw the lump-sum social insurance allowance to buy a car to invest in life, but that is only the matter when they are young, then what would happen when they are old? The policy needs to look at the part where they can no longer work, suffer from illness and have no pension, the State will then have to pay them the social allowance. The current rate of social allowance of several hundred thousand dong seems to look "small", but the accumulated millions of people will be a great burden that the State has to carry, not to mention over 60% of the elderly in Vietnam currently do not have a pension.

“Many complained that a great deal of elderly people do not have a pension, but how can they get one if they do not participate? The state only supports partially and employees need to join hands." - Huan said.

According to Loi, it is no worth that people are concerned that the Draft causes difficulties to receive lump-sum social insurance allowance as this policy would not go anywhere. For example, the cases of people who are sick or moving abroad, etc. and can no longer participate must be resolved. The group of subjects receiving lump-sum social insurance allowance is a specific and necessary group.

Illustrative image (source: Baohiemxahoi.gov.vn)

Strike a balance between contributing and benefiting

Currently, the per capita income in Vietnam of above 2,700 USD is not high. However, the income "pie" still needs to be divided between the current and saved spending for old age. In order for workers to ensure their lives, they must raise their average incomes by expanding production and creating sustainable jobs; At the same time, it is necessary to be transparent in the contribution and enjoyment of social insurance. “In the formal sector, it is still crucial to maintain an increase in the contribution rate on the basis of an increase in the wage level, which means that social insurance reform must go hand in hand with wage reform. If only 30% of compulsory social insurance coverage is reached, it is difficult to call it social security. In the long term, it is necessary to pull workers from the informal sector to the formal one, to proceed to pay compulsory social insurance and the State to partially support those with low contributions,” said Mr. Huan.

Regarding the social insurance contribution rate, Mr. Bui Sy Loi said that the state management agency must make sure that the payment level reaches 70% of the total salary income, according to the provisions of the labor law and the central resolution.

“The salary must be true to the salary meaning, the hardware must be higher than the software, not like the current situation where the software is bigger than the hardware, which does not reflect the true nature of the salary. Salaries act as a measure of the value of labor power which must be 70% and allowances account for 30%. When paying social insurance, 70% of the actual salary received must be paid so that the rate of contribution to the social insurance fund and the enjoyment rate also become higher." - Mr. Loi said.

In terms of the meaning of enjoying and contributing a great amount, Mr. Loi said that the most important thing is to reduce the imbalance of the pension fund in the long term. This also complements to gradually reduce the payment period from 20 years to 15 years and possibly to 10 years.

Huan emphasized: "Pension is also understood as a balance between contributions and benefits. It is possible to receive a pension after 10 years of paying social insurance, but the amount will be small. Low-payers should still receive a pension, instead of enjoying the lump-sum social insurance allowance as they would spend all of it one at a time, and their lives will be insecure later on.

Illustrative image (source: internet)

Regarding the reduction of the period of enjoying social insurance benefits in the Draft, Loi stated that if the time is reduced, it must be based on a higher premium to balance the fund. The root regulation of the payment period is to aim at more people participating in social insurance who will not rush to withdraw the lump-sum social insurance allowance.

Former Deputy Minister of Labor, War Invalids and Social Affairs Pham Minh Huan also said that the above proposal is humane, because in fact, many employees participate in social insurance late, and when they reach the retirement age but the number of years of paying social insurance contributions is not enough, those cases shall be resolved so that they can retire as they may no longer be healthy enough to work. Reducing the number of years of paying social insurance premiums before the retirement age also creates motivation and encourages employees to participate in social insurance more. “However, if the time of paying social insurance premiums is short, the pension will also be very low. Therefore, the law drafting committee needs to calculate and carefully study the number of years of payment and enjoyment to come up with a formula for calculating the appropriate pension." Currently, the draft is being consulted by ministries, branches, experts and classes of people, and the Ministry of Labour, Invalids and Social Affairs will synthesize comments to submit to the Government, expected in July. The draft amended law will be submitted to the National Assembly for consideration, comments and approval in the sessions in 2022 and 2023.