unlicensed legal aspects of pension product review of the clients rights and tax incentives related to voluntary pension insurance busin

CONTENTS LEGAL ASPECTS OF PENSION PRODUCT – REVIEW OF THE CLIENT’S RIGHTS AND TAX INCENTIVES TO ENCOURAGE VOLUNTARY PENSION INSURANCE BUSINESS CHAPTER 2 OVERVIEW OF INSURANCE BUSINESS:

INTRODUCTION

CHAPTER 2 OVERVIEW OF INSURANCE BUSINESS: THE POLICY AND PENSION POLICY

2.2 Pension policy and its features

2.4 Rights of client toward pension policy

CHAPTER 3 REVIEW THE CLIENT’S RIGHT OF TERMINATION AND WITHDRAWAL OF MONEY IN ADVANDE

3.1.1 Analysis of the current unsound regulations

3.2 Review of the right to withdrawal money in advance

CHAPTER 4 REVIEW TAX INCENTIVE REGULATIONS APPLIED FOR CORPORATE AND EMPLOYEE CLIENT BUYING PENSION PRODUCT

4.1 Analysis of the current unsound regulations – the need to encourage voluntary pension policy

CHAPTER 5 PROPOSAL ON LEGAL REFORM TO ENHANCE CLIENT RIGHTS AND TAX INCENTIVES FOR PENSION BUSINESS

5.2 Rights of withdrawal money in advance

The rapid rise of the global aging population is reshaping the economic, social, and political landscape of nations worldwide Vietnam is among the fastest-aging countries, ranking first in Asia and seventh globally.

Vietnam's remarkable economic growth over the past two decades has significantly boosted living standards and promoted healthier lifestyles As a result, life expectancy rose from 69.2 years in 2001 to 73.2 years in 2014, with projections suggesting it will reach 80.4 years by 2050.

The population aged 60 and over nearly doubled from about 5.6 million in 1990 to about 9.7 million in 2015, and is projected to triple over the next two decades, highlighting a significant aging population trend In contrast, births and the number of children under 15 declined sharply The graph illustrates the changing shares of residents aged 60 and over and those under 15 from 1990 to 2025, signaling a demographic shift toward an older population.

(Source: World Bank, UN, BMI, 2014)

As it can be seen, Vietnam has experienced the demographic transition from a young to an aging population within the last 25 years

Although life expectancy has risen over time, many elderly people in Vietnam live with limited health protection and financial insecurity The Vietnam Association of the Elderly reports that 73% of seniors do not have social insurance or pension benefits, compelling them to continue working or depend on adult children Those arrangements provide insufficient protection against old-age poverty, particularly as Vietnam remains a lower-middle-income country In 2014, the average income per capita stood at about $2,052, and although extreme poverty has fallen to around 3%, a substantial portion of the population still lives below the national poverty line (GSO).

World Bank data show that the poverty rate under the standard poverty line reached 13.5 percent in 2014 This indicates that Vietnam’s economic growth and income per capita have not kept pace with its rapid demographic transition While the Western world first developed and then aged, Vietnam is projected to age while still developing To address the challenges posed by this phenomenon, Vietnam is pursuing reforms aimed at sustaining growth and mitigating the impacts of an aging population.

1 http://www.worldbank.org/en/news/press-release/2016/02/23/new-report-lays-out-path-for-vietnam-to- reach-upper-middle-income-status-in-20-years

2 http://www.worldbank.org/en/country/vietnam/overview pension systems that help the population cope with the risk of poverty in old age

This exposes an alert and also a challenge to the national social welfare system in general

Social welfare systems aim to achieve two core goals: consumption smoothing and protection against old-age poverty Consumption smoothing helps shield households from sudden drops in living standards when income ceases or savings are depleted, keeping consumption stable over time At the same time, retirement protection reduces the risk of poverty in old age by providing a secure income and access to essential services.

Vietnam's pension system today comprises three components: a mandatory, publicly funded pension scheme known as Social Security (the first pillar); state-controlled supplementary pension funds; and privately managed voluntary pension funds called Pension (the third pillar) This configuration positions Social Security as the first pillar and private voluntary pensions as the third pillar, aligning Vietnam's system with international standards for a multi-pillar social security framework.

Currently, MOLISA has completed the process of studying and drafting the draft of the pilot project on supplementary pension policy as follows (Figure 1)

Pension and supplementary pension provide a portion of retirement income, and each person has a separate retirement account The assets accumulated in these accounts are owned by the insured individual and can be used at retirement age, with the payout administered through a Defined Contribution (DC) scheme While both pension types fund retirement, they differ in several key aspects.

Principle A life insurance product provided by insurers

Contribution Voluntary Voluntary (pre-stage) and mandatory (post-stage)

Subject Employee or group employee Employee and employer participating in Social Security

Payment Depend on the will of individual or employer

Contribution rate specified in labor contract/ collective agreement

Benefit Besides the protection benefit, insurers commit a minimum interest rate and the interest share of insurers’ profit, if any

All profits from the investment will be paid to the participant

Limitation in 3 cases: (i) reduced working capacity at 61% or more; (ii) suffers a dangerous disease; (iii) citizen of Vietnam is permitted abroad residence legally by competent authority of such country

All paid contribution of employee will be returned

Management Insurers and Management fund companies

Management fund companies, Custodian bank, and other financial intermediation

Regulation Law on insurance business and its guidance

Labor Code, Law on social insurance

Tax policy Tax incentive for employee and employer

MOLISA’s suggestion, tax incentive of Supplementary pension will be higher than the one of Pension

Many countries have shifted their pension systems from a single-pillar model to a multi-pillar framework, prompted by the limitations of relying on a single pillar for retirement income This transition aims to improve retirement security, diversify risk, and ensure long-term sustainability in aging societies Vietnam’s pension policy exemplifies this trend, illustrating how reforms blend public provisions with additional pillars to build a more robust and resilient retirement system.

Vietnam’s primary pension framework is the state-run social insurance system, which is largely mandatory Under this mandatory scheme, total contributions amount to 26% of the employee’s monthly salary, with 18% funded by employers and 8% by employees This arrangement illustrates Vietnam’s reliance on a single-pillar pension structure.

Participation in the mandatory social security system is relatively slow According to statistics from the Social Welfare System, in 2013 there were 10.6 million contributors to the system, a figure that mainly reflects contributions from state-run organizations, while contributions to the voluntary pension system remained limited.

 Secondly, the fund deficit can be attributed to the lack of capacity for management and implementation of the fund

Apart from the above, the current Social Insurance system also has the following limitations:

 The annual pension benefit from Social welfare system is capped at 75%*20 months of basic salary (currently about 21 million) per capita which is insufficient to maintain employees’ lifestyle after retirement

 Pension benefit from Social Welfare system is not inflation-protected Therefore, this amount will not be sufficient to maintain the lifestyle in the period of high inflation

Besides, though Vietnam has a relatively low retirement age, half of Vietnam’s employees here continue to opt for an early out, while Vietnam's official

Under the Law on Social Insurance and Article 43 of the Law on Occupational Safety and Health, retirement ages are set at 60 for men and 55 for women The Social Insurance Department stated this at a meeting held on October 26, 2015 They also noted that the number of people receiving pay-outs is increasing faster than the number of contributors, indicating a growing strain on the system. -**Support Pollinations.AI:** -🌸 **Ad** 🌸Powered by Pollinations.AI free text APIs [Support our mission](https://pollinations.ai/redirect/kofi) to keep AI accessible for everyone.

217 contributors for 1 retiree In 2010, this ratio fell to as low as 10.7/1 (see the trend is shown in the Figure 3 below) and now the ratio plummet to 8.13:1:

If this trend continues, MOLISA projects that by around 2034 the number of retirees will be equal to the number of social insurance payers, threatening the balance of the fund’s cash inflows and outflows “Sooner or later, the social insurance fund will fly off balance,” said Mr Tran Huy Lieu, Deputy Head of the Social Insurance Department 4.

Vietnam is reforming its social insurance system by expanding the retirement age and increasing the contribution rates for both employers and employees While these measures address immediate pressures, they are short-term solutions that do not fully resolve structural problems As a result, the Government of Vietnam is exploring alternative pension funds to reinforce the social insurance fund and ensure long-term sustainability for retirees.

4 http://e.vnexpress.net/news/news/half-of-vietnam-s-workforce-opts-for-early-retirement-threatening- pension-fund-3490583.html

To secure the long-term sustainability of the pension system, the government has implemented reforms to strengthen pension funding It has launched a roadmap to encourage retirement planning through voluntary pension insurance In parallel, the Ministry of Finance (MOF) and the Ministry of Labour, Invalids and Social Affairs (MOLISA) have developed two parallel pension tracks: the Supplementary Pension and the Pension Product.

OVERVIEW INSURANCE BUSINESS: THE POLICY AND PENSION

P ROCEDURE OF LAUNCHING PRODUCT

2.4 Rights of client toward pension policy

CHAPTER 3 REVIEW THE CLIENT’S RIGHT OF TERMINATION AND WITHDRAWAL OF MONEY IN ADVANDE

The rapid rise of the global aging population is exerting profound impacts on the economic, social, and political landscapes of nations Vietnam is among the countries experiencing the fastest aging rates, ranking first in Asia and seventh in the world.

Vietnam's strong economic growth over the past two decades has significantly raised living standards and fostered healthier lifestyles, with life expectancy rising from 69.2 years in 2001 to 73.2 years in 2014, and projections indicating it will reach about 80.4 years by 2050.

From 1990 to 2015, the number of people aged 60 and over nearly doubled, rising from about 5.6 million to around 9.7 million, and is forecast to triple over the next 20 years In contrast, births have fallen sharply, with newborns and children under 15 declining The accompanying chart shows the changing shares of those aged 60+ and under 15 from 1990 to 2025, illustrating the widening demographic imbalance.

Although life expectancy has risen, many elderly people in Vietnam live with limited health coverage and financial security The Vietnam Association of the Elderly reports that about 73% of seniors lack social insurance or pension benefits, forcing them to continue working or rely on their adult children This reliance and ongoing work provide insufficient protection against old-age poverty, especially since Vietnam remains a lower-middle-income country In 2014, the average income per capita was about $2,052, and although the extreme poverty rate has fallen to around 3%, a significant share of the population still lives below the national poverty line, according to the General Statistics Office (GSO).

World Bank data show Vietnam’s poverty rate was 13.5 percent in 2014, signaling that economic growth and per-capita income have not kept pace with the country’s ongoing demographic transition; unlike the Western world, which grew wealthy before aging, Vietnam is set to age while still developing To address the challenges posed by an aging population amid continued development, Vietnam is pursuing reforms designed to sustain growth, boost productivity, and expand social protection.

Social welfare systems are designed to achieve two core objectives: first, consumption smoothing, which protects households from abrupt drops in spending when income ceases or savings are exhausted; and second, protection against old-age poverty, ensuring financial security as people retire.

Vietnam's pension system operates on three pillars: (i) a mandatory, publicly funded pension—Social Security or compulsory retirement pension; (ii) state-controlled supplementary pension funds; and (iii) voluntary pension funds managed by private providers In this framework, Social Security is the first pillar and the voluntary private pension funds constitute the third pillar, aligning with international standards for a diversified social security system in Vietnam.

Pension and supplementary pension provide retirement income Each person has a separate retirement account, and the assets accumulated in that account belong to the insured and can be used at retirement age The payout method is Defined Contribution (DC) However, these two forms of insurance differ in several key aspects, including contribution structure, benefit calculation, investment options within the account, and how funds are paid out during retirement.

Many countries are reforming pension systems from a single-pillar model to a multi-pillar framework to address the limitations of relying on one retirement income source This global shift aims to improve financial security for retirees and the long-term sustainability of pension schemes Vietnam’s pension policy provides a clear example of this trend, illustrating how reforms diversify retirement income and strengthen pension resilience.

Vietnam's pension system is dominated by the state-run social insurance program, which is largely mandatory It requires a total contribution of 26% of the monthly salary, with 18% paid by employers and 8% by employees, reflecting a single-pillar framework with notable restrictions.

 Firstly, the participation rate of the mandatory social system is relatively slow According to statistics from The Social Welfare system, in 2013, there were 10.6 million contributors to the system However, this was mainly from state-run organizations and the number of contributions to voluntary pension system was still limited

3 Law on Social insurance and Article 43 of Law on occupational safety and health retirement age for men is 60 and women 55, the Social Insurance Department said at a meeting on October 26th, 2015 The number of people receiving payouts has increased faster than the number of contributors In 1996, there were

Unless this trend is reversed, MOLISA projects that by around 2034 the number of retirees will be equal to the number of social insurance payers, threatening the balance of the fund’s cash inflows and outflows “Sooner or later, the social insurance fund will fly off balance,” said Tran Huy Lieu, Deputy Head of the Social Insurance Department 4.

Vietnam is reforming its social insurance system by raising the retirement age and increasing contribution rates for both employers and employees to shore up the pension fund Yet these measures are short-term fixes that do not address the underlying systemic problems, prompting the Government of Vietnam to explore alternative pension funds to reinforce the social insurance system.

To ensure the long-term sustainability of the pension system, the government has implemented reforms to the pension funding mechanism It has launched a roadmap to encourage retirement self-reliance through voluntary pension insurance In parallel, the Ministry of Finance (MOF) and the Ministry of Labour, Invalids and Social Affairs (MOLISA) have developed two parallel pension schemes: a supplementary pension and a pension product, as described above.

R IGHTS OF P OLICY OWNER ( CLIENT ) TOWARD POLICY

Insurance laws in many jurisdictions require insurers to include standard provisions in individual life insurance policies to protect policyowners and beneficiaries, with all such policies mandating key clauses such as the free-look provision, the entire contract provision, the grace period provision, the reinstatement provision, policy withdrawals, and the nonforfeiture provision.

Although the exact wording of these provisions may vary across policies, insurers, and jurisdictions, they share a common principle, and Vietnam’s life insurance contracts fall within the scope of this provision.

An individual life insurance policy typically includes a free-look provision (also called a free-examination or cooling-off provision) that gives the policy owner a specified period after delivery to cancel the policy and receive a refund The free-look period begins on the date of delivery, not the issue date, and coverage remains in effect during this period or until the policy owner rejects the policy, whichever occurs first.

An entire contract clause defines which documents form the insurance policy between the insurer and the policyowner and limits the contract to those written documents, preventing oral statements from altering the policy terms By ensuring that only the specified writings govern the agreement, this clause helps policyowners and insurers avoid misunderstandings about the contractual terms and provides clear, enforceable boundaries for the policy.

Contract terms vary depending on whether the policy is a closed or open contract A closed contract is one in which only the terms printed in or attached to the contract are considered part of the agreement Most individual life insurance policies are closed contracts The entire contract provision in these policies typically states that the entire contract consists of (1) the policy.

The insurance contract comprises attached riders and the copy of the application for insurance, with the complete terms readily accessible to policyowners, ensuring clarity and transparency about the contractual agreement.

Grace period is the defined window after each renewal premium due date during which paying the premium keeps the policy in force The contract remains active during this grace period regardless of whether the renewal premium has been paid If the insured dies during the grace period, the insurer will pay the death benefit to the beneficiary, typically deducting any unpaid renewal premium from the death benefit.

Many individual life insurance policies include a reinstatement provision that explains the conditions under which the insurer will reinstate a policy Reinstatement is the process by which an insurer puts a life insurance policy back in force after it has lapsed due to nonpayment of renewal premiums or has continued under the extended term or reduced paid-up insurance nonforfeiture option Most insurers do not permit reinstatement if the policy has been surrendered for its cash surrender value When a policy is reinstated, the original policy is in effect again; the insurer does not issue a new policy.

A policy withdrawal provision, often called a partial surrender provision, lets the policyowner withdraw cash up to the full cash value, reducing the policy’s cash value by the withdrawal amount Insurers do not charge interest or require repayment on withdrawals; the cash value simply decreases by the withdrawal amount Many policies impose an administrative fee for each withdrawal and limit the number of withdrawals allowed within a year Withdrawals may also reduce the policy’s death benefit.

The nonforfeiture provision outlines the choices available to a cash value policyowner when the policy lapses or is surrendered If a renewal premium remains unpaid when the grace period ends, most nonforfeiture provisions let the policyowner select among several options, including the cash payment nonforfeiture option, two continued insurance coverage options (reduced paid-up insurance and extended term insurance), and the automatic premium loan option.

The cash payment nonforfeiture option lets a policyowner who stops premium payments surrender the policy and receive the policy’s cash surrender value in a lump-sum payment When a policyowner surrenders a cash value policy, the insurer deducts any surrender charges—specific fees charged for surrendering the policy—to determine the cash surrender value paid to the policyowner.

REVIEW THE CLIENT’S RIGHT OF TERMINATION/ CANCELLATION AND

R EVIEW OF T ERMINATION / C ANCELLATION RIGHTS

The rapid aging of the global population is reshaping economic, social, and political landscapes around the world Vietnam is among the fastest-aging nations, leading Asia in aging pace and ranking seventh globally This demographic shift challenges labor markets, healthcare systems, and public policy, underscoring the need for strategic responses to support aging societies.

Vietnam’s steady two-decade economic growth has significantly raised living standards and promoted healthier lifestyles Life expectancy rose from 69.2 years in 2001 to 73.2 years in 2014, and projections estimate it will reach about 80.4 years by 2050.

From 1990 to 2015, the population aged 60 and over almost doubled, rising from about 5.6 million to roughly 9.7 million, and is forecast to triple over the next 20 years By contrast, births and the number of children under 15 declined sharply The graph illustrates how the shares of the population aged 60+ and under 15 evolved from 1990 to 2025, highlighting a clear shift toward an aging demographic and a shrinking younger cohort.

Although life expectancy has increased, many elderly in Vietnam still live with limited health and financial security The Vietnam Association of the Elderly reports that 73% of older people do not have social insurance or pension benefits, forcing them to keep working or rely on adult children These arrangements provide inadequate protection against old-age poverty in a country that remains a lower-middle-income economy In 2014, Vietnam’s per-capita income was about $2,052, and while extreme poverty has fallen to roughly 3% today, a substantial portion of the population still lives below the national poverty line, according to the General Statistics Office (GSO).

The World Bank poverty line indicates that poverty reached 13.5 percent in 2014 This suggests that economic growth and income per capita have not kept pace with Vietnam’s rapid demographic transition While the Western world first developed and then aged, Vietnam is aging while still developing To address the challenges of an aging population and a changing economy, Vietnam is pursuing reform of its policy framework.

Social welfare systems are built around two core goals: securing consumption smoothing by shielding people from abrupt declines in living standards when income ends or savings run dry, and mitigating the risk of poverty in old age.

Vietnam's current pension framework comprises three components: a mandatory public-funded pension known as Social Security, supplementary pension funds controlled by the state, and voluntary pension funds managed by private providers Social Security is the first pillar of the system, while the voluntary, private pensions constitute the third pillar, aligning with international standards for pension structures The supplementary funds act as the second pillar, offering additional retirement income beyond the mandatory base Together, this three-pillar arrangement places Social Security as the foundational pillar and private, voluntary pensions as the flexible third pillar in line with global conventions.

Pension and supplementary pension are sources of retirement income Each individual has a separate retirement account, and the assets accumulated in that account are owned by the insured person and can be used at retirement age These plans operate on a Defined Contribution (DC) basis However, these two types of pension differ in several respects.

Globally, pension systems are reforming from a single-pillar model to a multi-pillar framework to mitigate the limitations of relying on one source of retirement income The reliance on a single pillar can expose retirees to greater financial risk and sustainability challenges as demographics and market conditions change Consequently, many countries are embracing multi-pillar designs that combine public pensions, workplace schemes, and private retirement savings to bolster stability and adequacy Vietnam’s pension policy is often cited as evidence of this trend, illustrating how diversifying pension provision can address the weaknesses of a sole pillar.

Vietnam's primary pension program is the state-run social insurance system, which remains largely mandatory Under this mandatory scheme, total contributions amount to 26% of the monthly salary, with employers paying 18% and employees contributing 8% This setup reflects Vietnam's single-pillar pension model and its associated limitations.

Participation in the mandatory social security system remains relatively slow According to data from the Social Welfare System, 2013 saw 10.6 million contributors, a number largely sourced from state-run organizations, while contributions to the voluntary pension system were still limited.

Under the Social Insurance Law and Article 43 of the Law on Occupational Safety and Health, retirement ages are 60 for men and 55 for women The Social Insurance Department announced this at a meeting held on October 26, 2015 They reported that the number of people receiving payouts has risen faster than the number of contributors, a trend that has been evident since 1996.

Unless this trend is reversed, MOLISA projects that by around 2034 the number of retirees will equal the number of social insurance contributors, threatening the cash inflows and outflows balance of the social insurance fund Sooner or later, the social insurance fund could fly off balance, warns Tran Huy Lieu, Deputy Head of the Social Insurance Department 4.

Vietnam is reforming its social insurance system, implementing measures like expanding the retirement age and increasing the contribution shares of both employers and employees These are short-term fixes that cannot instantly resolve systemic problems To reinforce the social insurance fund, the Vietnamese government is exploring alternative pension funds as part of its broader reform strategy.

To address these circumstances, the government has implemented reforms to the pension funding system to ensure its long-term sustainability It has launched a roadmap that encourages people to prepare for retirement through voluntary pension insurance Accordingly, the Ministry of Finance (MOF) and the Ministry of Labour, Invalids and Social Affairs (MOLISA) have developed two parallel pension frameworks—the Supplementary Pension and the Pension Product—as introduced above.

REVIEW TAX INCENTIVE REGULATIONS APPLIED FOR CORPORATE AND

PROPOSAL ON LEGAL REFORM TO ENHANCE CLIENT RIGHTS AND TAX

Tiêu đề	Legal Aspects of Pension Product – Review of the Client’s Rights and Tax Incentives Related to Voluntary Pension Insurance Business
Tác giả	Hoang Thi Hong Ha
Người hướng dẫn	Assoc. Prof. Pham Duy Nghia
Trường học	University of Economics Ho Chi Minh City
Chuyên ngành	Law/Economic Law
Thể loại	Master Thesis
Năm xuất bản	2017
Thành phố	Ho Chi Minh City

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Số trang	79
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