Restriction of one-time social security withdrawals: Experience from some countries and implications for Vietnam

15/04/2023 02:30 PM

Over the past 2 years, the widespread and complicated COVID-19 pandemic has caused many workers to lose their jobs and have no income. In that context, number of workers have chosen to withdraw one-time social insurance for spending and covering their daily life. This situation not only puts great pressure on Vietnam's social security system, but also affects the goal of universal social security.

It is necessary to study the experience of some countries in restricting the receipt of one-time social security, thereby policies are suggested for Vietnam in the coming time.

Restriction of one-time social security withdrawals, experience from some countries:

The social security system plays the most stable and pivotal role. The essence of social security is the guarantee of partial compensation or replacement of income of employees whose income is reduced or lost due to illness, maternity, occupational accident, occupational disease, unemployment, and those who come to retirement age or dies on the basis of their contributions to the Social security Fund.

Because of the importance of social security regimes throughout the life of the employee, most countries have regulations restricting employees from receiving one-time social security.

Illustrative image (internet)

According to the International Welfare Association and the International Labor Organization, countries with a pension security system similar to Vietnam do not allow one-time social insurance benefits before retirement age, except for those who reside abroad or critically ill. For example: In countries with a social security system with pre-determined benefits such as Laos, Myanmar, the Philippines, Thailand, India and Colombia, the law on social security allows one-time social security contributions. However, in order to receive a lump-sum social security payment, workers in these countries must meet age requirements. Notably, in these countries, when the workers reach retirement age, but they do not have enough time to pay social insurance premiums, employees will receive one-time social insurance. Meanwhile, other countries such as China, Japan, USA, Brazil, Canada, Argentina, France, Russia and Germany do not allow one-time social insurance benefits.

On the other hand, according to international organizations statistics, most countries with individual account-based pension insurance systems do not encourage employees to withdraw benefits before the age of 55 or only allow employees to withdraw their benefits before the age of 55 a limited percentage to meet part of immediate consumption and investment needs. However, this payment must be deducted from the Prevention Fund, the Supplemental Pension Fund or the retirement insurance programs by profession, to ensure that the employees are not at risk when they are old, having no pension and healthcare.

As for countries such as Brunei, Malaysia, Singapore and India, it is possible to early withdraw a limited amount of money from Prevention Funds, Supplemental Pension Funds or Sectoral Retirement Funds for housing purchase purposes or spending on education and health (in Brunei and Malaysia about 20%-25% of individual contribution accounts can be withdrawn to buy a house; in Malaysia, Singapore and India, limited withdrawals are allowed for education and health).

However, these countries also only allow one-time payments of early pensions after age 50 or 55 (India allows 90% of total contributions to be withdrawn at age 54, 4 years before retirement age); Malaysia allows 30% withdrawal at age 50 (5 years before retirement age); Singapore allows withdrawal of S$5,000 ($3,785) at age 55 (5 years before retirement); UK allows 100% withdrawal at age 55. Currently, some countries under this system are also narrowing down the conditions for withdrawing lump-sum social security, aiming for long-term welfare for employees, in line with the trend of population aging.

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Illustrative image (internet)

Status of receiving one-time social insurance in Vietnam

According to the statistics of VSS, in 2021, facing the impact of the COVID-19 pandemic, there were more than 800,000 people enjoying one-time social insurance and by the end of the first quarter of 2022, the number of people enjoying one-time social insurance was more than 208,000 people. The number of people receiving one-time social insurance has tended to increase in recent years.

It's worried that the number of people enjoying one-time social insurance tends to be younger. According to the statistics of VSS, those who enjoy the one-time social insurance benefits in the past time, mainly concentrated in the age group from 20 to 39 (accounting for 79% of the total number of people receiving one-time social insurance in the period 2014 - 2018). In which, the largest concentration is in the age group from 25 to 29 years old (accounting for 27.6%); the age group from 30 - 34 years old ranked second (accounting for 25.3%); followed by the age group from 35 - 39 years old and the age group from 20 - 24 years old with 15.5% and 10.6% respectively.

Experts say that the one-time social insurance payment for employees can solve some immediate difficulties, but it means that they are losing the opportunity to enjoy social insurance benefits when they are old. That is, when receiving a lump-sum social insurance, employees will lose the opportunity to enjoy pensions, have no material conditions to ensure life in old age, and have no chance to stabilize their lives. Especially, they will lose the benefit of being granted a free health insurance card to enjoy the benefits of medical examination and treatment and health care in old age; loss of death benefits such as funeral expenses, one-time survivor benefits, even monthly survivorship allowances, etc.

Policy suggestions for Vietnam

From the experience of restricting the receiving one-time social insurance in some countries, in order to minimize the withdrawal of one-time social insurance in Vietnam in the coming time, it is necessary to synchronously implement the following solutions:

Firstly, mechanisms and policies on social security shall be studied and perfected, in order to consider amending the Law on Social Insurance in the direction of reducing the time of payment of social insurance premiums for pension enjoyment from the current 20 years to 15 years, even 10 years in the spirit of Resolution No. 28-NQ/TW on reforming social security policies. This will contribute to increasing the attractiveness of social security policies (including voluntary social Insurance) and employees will have more motivation to continue to reserve and accumulate time to pay social insurance premiums to enjoy pensions, contributing to ensuring social insurance sustainability for employees.

The policy of one-time social insurance shall continue to be maintained but researched to amend in the direction of letting employees decide by themselves to choose the benefit or reservation towards the long-term retirement regime.

Secondly, economic growth shall be promoted and jobs shall be created, in order to improve incomes and living standards of employees. Only when employees have a stable income, have enough financial resources to cover living expenses and have savings, will they improve their ability to save and contribute to enjoying their old age.

Thirdly, the content, form and method of social insurance communication shall be comprehensively renovated to provide information, guide public opinion, and help employees fully and deeply understand the humanistic meaning of the social security policy.

Fourth, administrative procedures shall be reformed and application of information technology shall be promoted in working activities, in order to bring the best benefits to participants and beneficiaries of social security policies, thereby gradually creating and strengthening the confidence of social insurance participants in the policy.