VSS run SI fund formed by contributions of social insurance participants and employers  and the support of the Government aims to help social insurance participants when they meet such risks as retirement age, unemployment, sickness and workplace accidents. With the features, the fund gives the top priority to ensuring available, adequate, timely financial resources. Therefore, it is a must to ensure investment safety, liquidity, value and growth of the fund for the long term.

Achievements and challenges facing investment activities of the fund

The management of the investment of the social insurance fund has reaped remarkable achievements over the past years:

• Legal documents stipulating the investment of the fund have been issued and gradually improved, creating a legal framework for the operation of the fund. Currently, investment activities of the fund are being implemented in line with the Law on Social Insurance and the Government’s Decree No. 30/2016/ND-CP, the highest legal document prescribing investment activities of social insurance, health insurance and unemployment funds.
• The investment scale of the fund has increased in terms of both cumulative investments and profits through years. At the end of 2017, the cumulative investment of the fund increased 55 times as compared with 2000. The fund has become the biggest social welfare fund in Vietnam. Profits from investment activities have surged rapidly and continuously, up 57 times over 2000. The fund has maintained its value and growth.
• Investment portfolio and forms have been expanded and adjusted in conformity with national economic development and legal regulations. Investment activities of the fund have been carried out in line with legal regulations, ensuring safety and payback when necessary. The management of investment activities has becomes more professional and the organisation of the implementation of investment activities has been strengthened in terms of personnel and professional skills, with the application of information-technology and investment risk management.

VSS investment activities of the fund have to face such limitations and challenges as:

• Limitations in investment portfolio and structure: Because the social insurance fund prioritises capital safety and liquidity to ensure annual payments, investment forms have been regularised strictly. Investment portfolio mainly focuses on long-term investment areas, with fixed interest rates such as bonds of the Government and State owned commercial banks; and bank deposits. The form of investing in national key projects has recently been applied for only one project with a fairly small proportion. With the above-said investment portfolio and structure, the fund’s activities are assessed as safe, but investment efficiency and yield is not high.
• Challenges in demography and maintaining a balanced fund in long term: Vietnam’s population is aging quickly with increasing life expectancy while its total fertility rate, which stands at 1.95, is lower than the replacement-level fertility and this rate is likely to continue the downward trend in the coming years. The number of workers per retiree is projected to decline sharply from 5.4:1 in 2017 to 2.6:1 in 2037 (Source: World Bank, Michael Mathison). These are reasons behind decrease in collection of the social insurance fund and increase in payment made by the fund, causing lack of the fund’s sustainability in the long run.

Solutions to improve the fund’s investment efficiency

In accordance with the social insurance reforms being directed by the Government, the social insurance will be the mainstay of Vietnam’s social welfare system, towards the goal to develop a flexible, diversified, multi-layered, modern, internationally-integrated social insurance system on the principle of equality, sharing and sustainability including diversification of investment portfolio and structure of the social insurance fund towards safety, sustainability and efficiency.

Based on Vietnam’s current socio-economic situation and experience from successful investment of social insurance funds worldwide, the Vietnamese social insurance fund should under takes measures as followed:

• Investment portfolio and structure of investment property:

Diversifying the investment portfolio and structure: In addition to investment in government bonds, the social insurance fund should diversify its investment portfolio in high profitable areas such as stocks and bonds of high-performing enterprises in the national key industries; invest in the country’s key projects in infrastructure development, electricity, transportation, urban development which require large capital and produce high profits, and have a roadmap on the investment of partial idle money of the fund through investment trusts in both domestic and international markets.

Setting specific ratios and limits for investment domains and types of asset to ensure good risk management. The rates are adjusted periodically in accordance with the capital market development condition, financial status and payment responsibility of the fund.

• Investment modes:

Reforming investment modes and building investment strategies in line with the management of cash flow and payment responsibility of the social insurance fund in the future, linking to the prognosis of long-term social insurance fund balance towards professionalism and modernity.

Investing in the purchase and sale of government bonds in the primary market (Bidding on the stock exchange) and the secondary market, and gradually applying the Repurchase agreement (Repo) of Government bonds to increase investment returns; Investing in corporate bonds with high credit rating.

Having a roadmap to apply investment trust or hire reputable, professional property management companies to invest in highly profitable fields in the domestic and international markets, in line with the direction and instruction set by the Government that "... studying gradual expansion to highly profitable fields, and having a plan to invest part of idle money of the fund through investment trust in the domestic and international markets to ensure safety and sustainability”.

The management of investment activities through coordination between investment staff of the social insurance fund (implementing traditional investment forms to preserve value and ensure liquidity) and hired investment managers (implementing non-traditional, complex, and highly profitable investment forms) has been successfully applied by social insurance funds of many countries in the world, including Canada, the Republic of Korea, China, Malaysia and Thailand.

Organisational structure and personnel

Fund investment is a specific task that requires special expertise in financial investment. Therefore, it is necessary to build a qualified, capable and experienced investment staff in the investment field, in combination with a special recruitment, training and appropriate remuneration mechanism to attract high-quality human resources serving the social insurance fund’s activities.

In addition, the direct organizational apparatus for implementing the fund investment task should be developed professionally in line with the rules of financial market rather than the current administrative management mechanism.

Nguyen Vinh Quang, Director of Fund Investment Department, VSS