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
3.2.1 Analysis of the current unsound regulations
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 growth of the global aging population is having profound economic, social, and political consequences for nations around the world This demographic shift puts mounting pressure on labor markets, healthcare systems, pension reform, and public policy Vietnam, in particular, is among the fastest-aging countries, ranking first in Asia and seventh globally in the pace of population aging.
Vietnam's strong economic growth over the past two decades has significantly raised citizens' living standards and fostered healthier lifestyles As a result, life expectancy increased from 69.2 years in 2001 to 73.2 years in 2014, and projections indicate this trend continuing toward 80.4 years by 2050.
From 1990 to 2015, the population aged 60 and over nearly doubled, rising from about 5.6 million to around 9.7 million, and projections indicate it could triple over the next two decades By contrast, births and the number of children under 15 fell sharply The accompanying graph shows the share of people aged 60+ versus those under 15 from 1990 to 2025, highlighting the shifting age structure of the 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
Life expectancy has risen, yet many elderly in Vietnam still face limited health and financial conditions The Vietnam Association of the Elderly reports that 73% of older adults do not have social insurance or pension benefits, forcing them to keep working or rely on their adult children These sources of income are inadequate to prevent old-age poverty, especially since Vietnam remains a lower-middle-income country In 2014, the average income per capita was about $2,052; although extreme poverty has declined to around 3% today, a significant portion of the population still lives below the national poverty line, according to the General Statistics Office (GSO).
World Bank data show the poverty rate at 13.5 percent in 2014, indicating that economic growth and income per capita have not kept pace with Vietnam’s demographic transition While Western nations industrialized and aged earlier, Vietnam is set to age while it remains developing The country is currently addressing the resulting challenges through reforms of its economic and social policies.
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 are designed around two core objectives: first, to smooth consumption and shield households from abrupt declines in living standards when income ceases or savings are depleted; and second, to protect individuals from poverty in old age.
At present, the insurance system in Vietnam consists of (i) mandatory public- funded pension fund, known as a compulsory retirement pension (called as Social Security), (ii) supplementary pension funds controlled by the state, and (iii) voluntary pension funds managed by the private (called as Pension) In which, Social Security can be considered as the first pillar and Pension can be considered as the third pillar of the social security system in line with international standards
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 are a portion income of the retirement age Everyone has a separate retirement account Assets accumulated and formed in a retirement account are owned by the insured person and are entitled to use at retirement age Form of payment is DC (Defined Contribution) However, these two insurance kinds have many different points as follow:
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
Across the globe, pension reform is shifting from a single-pillar model to a multi-pillar system to address coverage gaps and long-term financial sustainability Relying on a single pillar exposes weaknesses such as insufficient retirement income, demographic pressures, and funding shortfalls, prompting governments to diversify through mandatory public schemes, occupational plans, and voluntary private components Vietnam’s pension policy exemplifies this shift, illustrating how the move toward a multi-pillar framework can strengthen social protection for aging populations.
Vietnam relies primarily on a state-run social insurance system as its mandatory pension program The scheme requires a total contribution of 26% of the monthly salary, with 18% paid by employers and 8% by employees This indicates Vietnam's single-pillar pension framework, which has restrictions that follow.
The participation rate in the mandatory social security system remains relatively slow Data from the Social Welfare System indicate that in 2013 there were about 10.6 million contributors, a figure dominated by workers in 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
At a meeting on October 26, 2015, the Social Insurance Department stated that under the Law on Social Insurance and Article 43 of the Law on Occupational Safety and Health, retirement ages are 60 for men and 55 for women, and that the number of people receiving pay-outs has risen faster than the number of contributors, signaling a mounting pressure on the social insurance system.
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 social insurance fund's cash inflow and outflow balance "Sooner or later, the social insurance fund will fly off balance," warned Tran Huy Lieu, Deputy Head of the Social Insurance Department 4.
Vietnam is reforming its social insurance system, implementing measures such as expanding the retirement age and raising the contribution ratio for both employers and employees to strengthen the fund However, these steps are mainly short-term fixes and cannot immediately resolve the system's deeper structural problems Consequently, the Government of Vietnam is examining alternative pension funds to reinforce the social insurance fund.
4 http://e.vnexpress.net/news/news/half-of-vietnam-s-workforce-opts-for-early-retirement-threatening- pension-fund-3490583.html
To ensure the long-term sustainability of the pension system, the government has reformed the pension funding framework It has launched a roadmap to promote 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 introduced two accompanying pension options—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
3.1.1 Analysis of the current unsound regulations
3.2 Review of the right to withdrawal money in advance
3.2.1 Analysis of the current unsound regulations
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
Global population aging is accelerating rapidly, with far-reaching effects on economic performance, social welfare systems, and political dynamics across nations The fast-growing aging rate strains labor markets, healthcare, and public finances, while shaping policy priorities and intergenerational relationships worldwide Vietnam stands out as one of the fastest‑aging countries, ranking first in Asia and seventh in the world, a trend that signals substantial future economic and social transformations for the nation.
Vietnam's rapid economic growth over the past two decades has significantly raised living standards and fostered healthier lifestyles for its citizens As a result, life expectancy rose from 69.2 years in 2001 to 73.2 years in 2014, with projections suggesting it could reach 80.4 years by 2050.
From 1990 to 2015, the number of people aged 60 and over rose from about 5.6 million to approximately 9.7 million, a near doubling, and is projected to triple over the next two decades In contrast, births and the share of children under 15 declined sharply The accompanying chart tracks the proportions of the population aged over 60 and under 15 from 1990 to 2025, highlighting the growing aging population and the shrinking young cohort.
(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 increased, many seniors live under constrained health and financial conditions The Vietnam Association of the Elderly reports that about 73% of older adults lack social insurance or pension benefits, leaving them to continue working or rely on their adult children That ongoing work or dependence is generally insufficient to prevent old-age poverty Vietnam remains a lower-middle-income country, with an average per-capita income of $2,052 in 2014 While extreme poverty has fallen to about 3%, a significant share of the population still lives below the national poverty line, according to GSO data.
According to the World Bank, the poverty rate defined by the World Bank’s poverty line reached 13.5% in 2014, highlighting that economic growth and income per capita have not kept pace with Vietnam’s demographic transition While the Western world aged earlier, Vietnam is set to age while still developing, which magnifies the challenges of sustaining growth and living standards To address these pressures, Vietnam is pursuing reforms across its economic and social policies to adapt to an aging population and promote more inclusive growth.
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 pursue two core objectives: consumption smoothing, which protects households from abrupt declines in consumption when income ceases or savings are depleted, and protection against old‑age poverty By reducing income volatility, consumption smoothing stabilizes living standards over the life cycle, while strong retirement protections provide income security in old age Together these aims help maintain economic well‑being across generations through a mix of social insurance, transfers, and pension programs.
Vietnam's pension framework currently comprises three components: (i) a mandatory public-funded pension, the compulsory retirement pension, known as Social Security; (ii) state-controlled supplementary pension funds; and (iii) voluntary pension funds managed by the private sector, referred to as Pension In this structure, Social Security serves as the first pillar and the private voluntary Pension as the third pillar, aligning with international standards.
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 together form part of retirement income, and each individual has a separate retirement account The assets accumulated in these accounts are owned by the insured person and become available to use at retirement age, with benefits paid under a Defined Contribution (DC) arrangement Although both serve to support financial security in retirement, pension and supplementary pension differ in several key aspects, including their purpose, structure, and how contributions and benefits are managed.
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
Most countries are reforming their pension systems from a single-pillar model to a multi-pillar framework to address the limitations of relying on one pillar This shift aims to diversify retirement income, improve financial sustainability, and reduce vulnerability to demographic and economic shocks Vietnam’s pension policy serves as clear evidence of this global trend, illustrating how countries are expanding pension coverage and strengthening diversification of retirement income sources.
Vietnam's pension system is currently dominated by the state-run social insurance program, which remains largely mandatory The mandatory scheme requires total contributions of 26% of an employee's monthly salary, with 18% paid by employers and 8% paid by employees This reflects Vietnam's single-pillar pension framework and its associated limitations.
Participation in the mandatory social protection system remains relatively slow Data from the Social Welfare System show that in 2013 there were about 10.6 million contributors, a figure largely drawn 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 60 for men and 55 for women At a meeting on October 26, 2015, the Social Insurance Department stated that the number of people receiving pay-outs has risen faster than the number of contributors.
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:
Unless this trend is reversed, MOLISA projects that by around 2034 the number of retirees will equal the number of social insurance payers, threatening the balance of the social insurance 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 with measures such as expanding the retirement age and raising contribution rates for both employers and employees However, these actions are largely short-term fixes that do not address deeper structural issues within the system Consequently, the Vietnamese government is exploring alternative pension funds to bolster the social insurance fund and strengthen long-term sustainability.
4 http://e.vnexpress.net/news/news/half-of-vietnam-s-workforce-opts-for-early-retirement-threatening- pension-fund-3490583.html
Facing these conditions, the government has taken reform steps to ensure the long-term sustainability of the pension funding system It has launched a roadmap to promote retirement self-reliance through voluntary pension insurance Accordingly, the MOF and the MOLISA have developed two parallel pension schemes—Supplementary pension and Pension product—as introduced 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 policy owners and beneficiaries These required provisions typically include the free-look provision, the entire contract provision, the grace period provision, the reinstatement provision, the policy withdrawals provision, and the nonforfeiture provision.
Although the exact wording of these provisions varies across policies, insurers, and jurisdictions, they share a common underlying principle Vietnam’s life insurance contracts fall within the scope of this provision, showing its applicability to life insurance terms in different markets Despite differences in phrasing, the substantive intent remains consistent: to regulate how life insurance agreements are interpreted and enforced within the regulatory framework.
An individual life insurance policy typically includes a free-look (free-examination or cooling-off) provision that gives the policy owner a defined period after delivery to cancel the policy and receive a refund The free-look period begins on the delivery date, not the issue date, and coverage remains in effect during this period unless the policy owner rejects the policy earlier.
The entire contract provision specifies the documents that constitute the contract between the insurance company and the policyowner It limits the contract terms to those written documents, preventing oral statements from altering the policy terms This provision helps policyowners and insurers avoid misunderstandings about the contractual agreement.
In life insurance, the exact wording of the entire contract provision changes based on whether the policy is a closed contract or an open contract A closed contract is one in which only the terms printed or attached to the contract are considered part of the agreement, and most individual life insurance policies are closed contracts For these policies, the entire contract provision typically states that the entire contract consists of the policy.
Included in the policy documents are (2) any attached riders and (3) the attached copy of the insurance application This full contract provision guarantees policyowners access to all terms of the contractual agreement, ensuring they can review coverage details, conditions, and the rights and obligations outlined in the policy.
The grace period is a defined length of time after each renewal premium due date during which the premium may be paid without loss of coverage During this period the contract remains in effect regardless of whether the premium is paid If the insured dies during the grace period, the insurer will pay the death benefit to the beneficiary, though any unpaid renewal premium is usually deducted from the death benefit.
Individual life insurance policies typically include a reinstatement provision that describes the conditions under which the insurer will reinstate a policy Reinstatement is the process of putting back into force a policy that has lapsed due to nonpayment of renewal premiums or that has continued under an extended term or reduced paid-up insurance nonforfeiture option Most insurers do not permit reinstatement if the policyowner has surrendered the policy for its cash surrender value When reinstated, the original policy is back in effect and the insurer does not issue a new policy.
A policy withdrawal provision, often called a partial surrender, lets the policyowner withdraw cash from the policy’s cash value up to the existing amount, reducing the cash value by the withdrawal Insurers generally do not charge interest or require repayment on withdrawals; however, many policies impose an administrative fee per withdrawal and limit the number of withdrawals per year Withdrawals can also reduce the policy’s death benefit.
The nonforfeiture provision outlines the options available to the owner of a cash value policy if the policy lapses or the policyowner decides to surrender or terminate the policy Most nonforfeiture provisions give the policyowner the right to select from several nonforfeiture options if a renewal premium is unpaid when the grace period expires These options typically include the cash payment nonforfeiture option, two continued insurance coverage options, reduced paid-up insurance and extended term insurance, and the automatic premium loan option.
Under the cash payment nonforfeiture option, a policyowner who stops paying premiums can elect to surrender the cash value life insurance policy and receive its cash surrender value as a lump-sum payment In this process, the insurer first deducts any surrender charges—fees imposed specifically when a cash value life insurance policy is surrendered for its cash surrender value.
REVIEW THE CLIENT’S RIGHT OF TERMINATION/ CANCELLATION AND
R EVIEW OF T ERMINATION / C ANCELLATION RIGHTS
3.1.1 Analysis of the current unsound regulations
3.2 Review of the right to withdrawal money in advance
3.2.1 Analysis of the current unsound regulations
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 driving significant economic, social, and political changes for nations worldwide Vietnam stands out as one of the fastest-aging countries, ranking first in Asia and seventh in the world for the pace of population aging.
Vietnam’s remarkable economic growth over the past two decades has significantly raised living standards and fostered healthier lifestyles for its citizens This progress is reflected in life expectancy, which rose from 69.2 years in 2001 to 73.2 years in 2014, with projections suggesting it will reach about 80.4 years by 2050.
From 1990 to 2015, the number of people aged 60 and over nearly doubled, increasing from about 5.6 million to around 9.7 million, with projections suggesting this cohort will triple over the next two decades In contrast, births and the under-15 age group fell sharply The accompanying graph illustrates the changing shares of those aged 60 and over and those under 15 from 1990 through 2025.
(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
Life expectancy continues to rise, but many elderly in Vietnam live under constrained health and financial conditions The Vietnam Association of the Elderly reports that about 73% of older people lack social insurance or pension benefits, leaving them to keep working or rely on adult children These limited supports are often insufficient to prevent old-age poverty, especially since Vietnam remains a lower-middle-income country with an average income per capita of about $2,052 in 2014 Although the extreme poverty rate has fallen to 3%, a substantial portion of the population still lives below the national poverty line, according to the General Statistics Office (GSO).
The World Bank's estimate put the poverty rate at 13.5% in 2014 This indicates that economic growth and income per capita have not kept pace with Vietnam's demographic transition While the Western world industrialized and aged first, Vietnam is set to age while still developing To address the challenges of an aging population, Vietnam is pursuing reforms of its economic and social policy framework.
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 pursue two core objectives: consumption smoothing, protecting households from abrupt declines in spending when income ceases or savings are depleted, and safeguarding against old-age poverty by ensuring a secure income in retirement.
Vietnam’s pension system today consists of three components: a mandatory, publicly funded retirement program known as Social Security (the first pillar); state-controlled supplementary pension funds; and voluntary private pension plans (the third pillar) Aligning with international standards, Social Security is the first pillar and voluntary private pensions constitute the third pillar of the national 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 a retirement account are owned by the insured person and can be accessed at retirement age The payment method is Defined Contribution (DC) However, these two types of pension insurance differ in several important respects, including eligibility, contribution rules, how benefits are calculated, and how payments are made.
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
Today, most countries are reforming their pension systems from a single-pillar to a multi-pillar framework to overcome the limitations of relying on a single pillar This shift addresses concerns that a single-pillar model cannot adequately secure retirees’ income amid aging populations, funding gaps, and demographic risk Vietnam’s pension policy provides clear evidence of this trend, illustrating how reforms aim to diversify retirement benefits and strengthen the sustainability and adequacy of pensions.
Vietnam’s pension system is currently dominated by the state-run social insurance program, a largely mandatory framework Under this scheme, contributions total 26% of an employee’s monthly salary, with 18% paid by employers and 8% by employees This reflects Vietnam’s reliance on a single-pillar pension structure and its inherent 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
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 60 for men and 55 for women The Social Insurance Department stated this at a meeting held on October 26, 2015 They noted that the number of people receiving pay-outs has risen faster than the number of contributors.
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:
Without reversing current trends, MOLISA forecasts that by around 2034 the number of retirees will equal the number of social insurance payers, risking an imbalance between the fund’s cash inflows and outflows This demographic squeeze could threaten the sustainability of the social insurance system, with officials warning that the fund will eventually fly off balance “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 introducing measures such as extending the retirement age and raising the contribution ratio for both employers and employees While these steps address immediate pressures, they are largely short-term fixes that do not fully resolve the systemic problems underlying the fund As a result, the government is considering alternative pension funds to bolster the social insurance fund and strengthen its long-term financial sustainability.
4 http://e.vnexpress.net/news/news/half-of-vietnam-s-workforce-opts-for-early-retirement-threatening- pension-fund-3490583.html
To ensure the long-term sustainability of the pension funding system, the government has implemented reforms and launched a roadmap that encourages self-reliance after 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 schemes: the Supplementary Pension and the Pension Product, as described above.