(Luận văn) legal aspects of pension product review of the clients rights and tax incentives related to voluntary pension insurance business

INTRODUCTION

CHAPTER 2 OVERVIEW OF INSURANCE BUSINESS: THE POLICY AND

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

4.3 International reference tot nghiep do wn load thyj uyi pl aluan van full moi nhat z z vbhtj mk gmail.com Luan van retey thac si cdeg jg hg x

CHAPTER 5 PROPOSAL ON LEGAL REFORM TO ENHANCE CLIENT

RIGHTS AND TAX INCENTIVES FOR PENSION BUSINESS

5.2 Rights of withdrawal money in advance

5.3 Tax incentive policy tot nghiep do wn load thyj uyi pl aluan van full moi nhat z z vbhtj mk gmail.com Luan van retey thac si cdeg jg hg

The rapid aging of the global population has significantly impacted economic, social, and political landscapes worldwide Vietnam is notable for its swift population aging rate, ranking first in Asia and seventh globally, highlighting the urgent need for policies to address the challenges of an aging society.

Vietnam’s impressive economic growth over the past two decades has significantly improved citizens' living standards, promoting healthier lifestyles This progress has resulted in an increase in average life expectancy from 69.2 years in 2001 to 73.2 years in 2014, with projections indicating it will reach 80.4 years by 2050.

Between 1990 and 2015, the population aged 60 and above nearly doubled from approximately 5.6 million to 9.7 million, and is projected to triple over the next 20 years, highlighting significant demographic aging Conversely, the number of newborns and children under 15 declined sharply during this period The accompanying graph illustrates the changing proportions of the elderly population above 60 and young children under 15 from 1990 to 2025, emphasizing shifting age demographics and the impact on future population structure.

Graph 1.1: Vietnam's life expectancy trend from 2001 to

2050 (years) tot nghiep do wn load thyj uyi pl aluan van full moi nhat z z vbhtj mk gmail.com Luan van retey thac si cdeg jg hg

(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

Despite increasing life expectancy, many elderly individuals in Vietnam face limited health and financial resources According to the Vietnam Association of the Elderly, 73% of seniors lack social insurance or pension benefits, forcing them to continue working or depend on their adult children However, this reliance is insufficient to prevent old-age poverty, especially as Vietnam remains a lower middle-income country with an average income per capita of $2,052 in 2014 Although the rate of extreme poverty has decreased to 3%, many elderly still experience financial insecurity in their later years.

The proportion of the population living below the national poverty line (GSO-

In 2014, the World Bank reported that the poverty rate in Vietnam reached 13.5 percent, highlighting challenges in socio-economic development Despite economic growth, income per capita has not kept pace with the country's demographic transition, creating additional pressures Unlike Western countries that developed first and then aged, Vietnam is currently experiencing rapid aging amidst ongoing development To address these emerging demographic challenges, Vietnam is implementing comprehensive reforms aimed at ensuring sustainable growth and social stability.

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

Vietnam's age demographic has experienced significant changes from 1990 to 2025, reflecting shifts in population structure over time Understanding these trends is crucial for policymaking and planning for future social and economic development The data shows a gradual increase in the aging population, emphasizing the need for sustainable healthcare and social support systems Analyzing such demographic changes helps in predicting future workforce dynamics and developing appropriate strategies to address potential challenges.

3 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 primarily aim to ensure consumption smoothing, which involves safeguarding individuals from sudden drops in their standard of living when income stops or savings run out Additionally, these systems are designed to protect against the risk of old age poverty, ensuring financial security for seniors.

Vietnam’s current insurance system comprises three main components: the mandatory public-funded pension scheme known as Social Security, which serves as the first pillar; state-controlled supplementary pension funds; and voluntary private pension funds, collectively forming the third pillar Social Security functions as the foundational pillar in Vietnam’s social security architecture, aligning with international pension system standards.

Currently, MOLISA has finalized the study and drafting of the pilot project on supplementary pension policies, aimed at enhancing retirement security for workers This initiative reflects the government's commitment to improving social welfare and ensuring sustainable pension schemes The project development process includes comprehensive research and stakeholder consultations to ensure effective implementation This pilot program is a critical step towards establishing a more robust and inclusive pension system in Vietnam.

Pension and Supplementary pension are a portion income of the retirement age

Each individual has a dedicated retirement account where assets accumulated over time are owned by the insured person and available for use upon reaching retirement age These retirement assets are typically structured as Defined Contribution (DC) plans, providing flexibility and ownership to the account holder While both types of insurance serve to secure retirement income, they differ significantly in key aspects such as payout methods, contribution schemes, and risk sharing, making it essential to understand their distinct features for effective retirement planning.

Principle A life insurance product provided by insurers

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

Employees and groups of employees actively participate in social security programs, which are essential for providing financial protection and social benefits Employers play a vital role in ensuring their workforce is enrolled and compliant with social security regulations Staying updated on the latest policies and contributions helps maintain employment stability and social security rights Engaging with social security systems benefits both workers and employers by fostering a secure and fair work environment.

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 recommends that the tax incentives for supplementary pensions will be higher than those for regular pensions, encouraging individuals to prioritize additional retirement savings This policy aims to promote financial security for retirees through enhanced government support for supplementary pension contributions Implementing more favorable tax policies for supplementary pensions can significantly motivate people to invest in their future, ensuring a more sustainable and comfortable retirement.

Many countries are reforming their pension systems from a single-pillar to a multi-pillar approach to address the limitations of relying solely on one source of retirement income Vietnam’s pension policy exemplifies this global trend, highlighting the shift towards diversified pension frameworks to ensure financial stability for retirees.

Vietnam's primary pension system is the state-managed social insurance program, primarily mandatory for all employees This mandatory scheme requires a total contribution of 26% of monthly salary, with employers paying 18% and employees contributing 8% Currently, Vietnam's pension landscape is characterized by a single-pillar system, which limits diversification and long-term sustainability of retirement benefits.

The participation rate in the mandatory social welfare system remains comparatively slow In 2013, there were approximately 10.6 million contributors, primarily from state-operated organizations However, contributions to the voluntary pension system remained limited, indicating a need to boost engagement in voluntary social security programs.

 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

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 increase in the aging population worldwide has significant impacts on the economic, social, and political stability of nations Vietnam is notably experiencing one of the fastest aging rates, ranking first in Asia and seventh globally This demographic shift poses unique challenges and opportunities for the country's development and policy planning.

Vietnam’s impressive economic growth over the past two decades has significantly improved citizens’ living standards, promoting healthier lifestyles This progress has led to an increase in life expectancy from 69.2 years in 2001 to 73.2 years in 2014, with projections indicating it will reach 80.4 years by 2050.

Between 1990 and 2015, the global population aged 60 and above nearly doubled from approximately 5.6 million to 9.7 million, with projections indicating that this demographic will triple over the next 20 years, highlighting a significant aging trend In contrast, the number of newborns and children under 15 has declined sharply during the same period The accompanying graph illustrates the changing proportions of populations over 60 and under 15 from 1990 to 2025, emphasizing the demographic shift toward an aging society.

Despite increasing life expectancy, many elderly individuals in Vietnam face limited health and financial resources, with 73% lacking social insurance or pension benefits, according to the Vietnam Association of the Elderly Consequently, most seniors must continue working or depend on their adult children, yet these support systems remain insufficient to prevent old-age poverty As a lower middle-income country, Vietnam's economic status constrains retirement security, with an average income per capita of $2,052 in 2014 Although the rate of extreme poverty has decreased to 3%, ensuring sustainable financial security for the aging population remains a significant challenge.

In 2014, the WB poverty line indicated that 13.5 percent of the population was living below the poverty threshold, highlighting ongoing economic challenges Despite economic growth, Vietnam’s income per capita has not kept pace with its rapid demographic transition, marking a divergence from Western developed countries that aged after achieving higher income levels Unlike the Western countries that first developed and then faced aging populations, Vietnam is experiencing the aging process while still in the midst of its development phase To address the challenges posed by this demographic shift, Vietnam is implementing comprehensive reforms aimed at sustainable social and economic development.

The data illustrated in Graph 1.2 highlights the demographic shifts in Vietnam's age distribution from 1990 to 2025 Understanding these trends is essential for planning future social and economic policies, especially in areas such as healthcare, workforce development, and pension systems The chart shows changes in the proportion of different age groups over this period, reflecting Vietnam's aging population and potential implications for sustainable development Analyzing these demographic patterns can help policymakers anticipate challenges and opportunities related to Vietnam's evolving age structure.

Social welfare systems primarily aim to ensure consumption smoothing by protecting individuals from sudden drops in consumption due to income loss or depleted savings Additionally, these systems play a crucial role in safeguarding against old age poverty, providing financial security for individuals in retirement Together, these objectives help promote economic stability and social well-being by mitigating income risks throughout different life stages.

Vietnam’s current insurance system comprises three main components: the mandatory public-funded pension fund, known as Social Security, which acts as the first pillar; supplementary pension funds controlled by the state; and voluntary pension funds managed by private entities, collectively forming the third pillar Social Security serves as the foundational element of Vietnam’s social security framework, aligning with international standards, while pension schemes enhance retirement security through supplementary and voluntary contributions.

Currently, MOLISA has finalized the study and drafting of a pilot project on supplementary pension policies, aiming to enhance retirement security and encourage private pension schemes This initiative is part of broader efforts to improve social welfare and ensure sustainable pension systems The pilot project offers new opportunities for individuals to supplement their retirement income through additional pension options, aligning with the government's social security goals Continued research and implementation of these policies are essential for strengthening the country's social support framework and promoting economic stability.

Every individual has a dedicated retirement account, where assets accumulated are owned by the account holder and accessible upon reaching retirement age These retirement funds are typically managed under a Defined Contribution (DC) plan, ensuring the insured can benefit from their savings during retirement While both types of insurance serve to secure financial stability after retirement, they differ significantly in terms of structure, benefits, and payout methods Understanding these distinctions is essential for making informed retirement planning decisions.

Employees and groups of employees play a vital role in social security participation, ensuring protection and benefits for both workers and employers Engaging actively in social security systems helps promote financial stability and social welfare, emphasizing the importance of compliance for sustainable employment relationships Staying updated with the latest regulations and contributions is essential for employers and employees alike to maximize benefits and ensure proper social security coverage.

MOLISA recommends offering higher tax incentives for supplementary pensions compared to traditional pensions This policy aims to encourage individuals to save more for their retirement, ensuring better financial security in later years Implementing increased tax benefits for supplementary pension plans can promote long-term savings and boost private pension contributions Enhancing tax incentives in this sector aligns with broader efforts to strengthen retirement preparedness and support economic stability.

Many countries are shifting from a traditional single-pillar pension system to a multi-pillar approach to address the limitations of relying solely on a single source of retirement income Vietnam's pension policy exemplifies this global trend, highlighting the need for diversified pension systems to ensure financial stability for retirees This reform aims to enhance sustainability and coverage, adapting to changing demographic and economic conditions worldwide.

Vietnam's primary pension system is the state-managed social insurance scheme, which is predominantly mandatory This system requires a total contribution of 26% of an employee’s monthly salary, with employers contributing 18% and employees contributing 8% Currently, Vietnam's pension framework relies mainly on a single-pillar model, emphasizing the importance of social insurance as the foundational source of retirement benefits.

The participation rate in the mandatory social system remains relatively low, with slow growth observed over the years In 2013, only 10.6 million individuals contributed to the system, primarily through state-run organizations Meanwhile, contributions to the voluntary pension system remained limited, indicating challenges in encouraging broader participation in voluntary social security programs.

R IGHTS OF P OLICY OWNER ( CLIENT ) TOWARD POLICY

Insurance laws across various jurisdictions mandate that insurers include essential standard provisions in all individual life insurance policies to safeguard policy owners and beneficiaries Key provisions typically required are the free-look period, which allows policyholders to review and cancel the policy within a specific timeframe; the entire contract clause, ensuring the policy and its attachments constitute the complete agreement; the grace period, providing additional time for premium payments without policy lapse; reinstatement provisions, outlining how a lapsed policy can be restored; policy withdrawal rights, detailing options for accessing cash values; and nonforfeiture provisions, protecting policyholders from losing their benefits if they stop paying premiums These provisions enhance policy clarity, fairness, and consumer protection.

Although the specific wording of these provisions may vary across different policies, insurers, and jurisdictions, they generally serve to outline essential coverage details and policyholder rights, ensuring clarity and legal compliance Tailoring policy language helps providers address regional legal requirements while maintaining clear communication for insured individuals Clear and consistent language in insurance policies is crucial for understanding coverage scope, exclusions, and claim procedures, thereby enhancing customer trust and reducing disputes.

21 similar in principle Vietnam’s life insurance contract is not out of scope of this provision

An individual life insurance policy generally features a free-look provision, also known as a cooling-off or free-examination period, allowing policyholders to cancel the policy for a refund within a specified timeframe after delivery This free-look period starts on the date the policy is received, not when it is issued, and remains in effect until the policyholder either cancels the policy or the period expires During this time, the insurance coverage remains active, providing a window for policyholders to review and decide without penalties.

The entire contract provision specifies the documents that constitute the binding agreement between the insurance company and the policyholder, ensuring clarity and legal enforceability By limiting the contract to written documents, this provision prevents oral statements from altering the policy’s terms, thereby reducing potential misunderstandings This helps both policyowners and insurers clearly understand and adhere to the agreed-upon contractual terms, promoting transparency and reducing disputes in insurance agreements.

The wording of the contract provision differs based on whether the policy is classified as a closed or open contract A closed contract includes only the terms and conditions explicitly printed or attached to the policy, making these documents the definitive parts of the agreement Most individual life insurance policies are considered closed contracts, with the entire contract provision typically stating that the policy and any attached documents constitute the complete agreement between the insurer and the policyholder.

The contract provisions include any attached riders and a copy of the insurance application, ensuring policyholders have full access to all terms of their contractual agreement.

2.4.3 Grace Period Provision tot nghiep do wn load thyj uyi pl aluan van full moi nhat z z vbhtj mk gmail.com Luan van retey thac si cdeg jg hg

The grace period provision defines the specific timeframe after each premium due date during which the policyholder can pay the premium without losing coverage This period ensures that the insurance contract remains in effect even if the premium is paid late If the insured person passes away during the grace period, the insurer will still pay the death benefit to the beneficiary, though any unpaid renewal premiums are typically deducted from the death benefit This feature provides financial protection and flexibility for policyholders, emphasizing the importance of understanding grace periods in life insurance policies.

Individual life insurance policies generally include a reinstatement provision outlining the conditions the policyowner must meet for the insurer to reinstate the policy Reinstatement restores a policy that has been terminated due to nonpayment of premiums or continued under extended or reduced paid-up nonforfeiture options 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 put back into effect, and the insurer does not issue a new policy.

A policy withdrawal provision, also known as a partial surrender provision, allows policy owners to access the cash value of their policy by withdrawing up to the available amount in cash Insurers do not charge interest or expect repayment on these withdrawals; instead, the cash value is simply reduced by the withdrawal amount Many policies impose administrative fees for each withdrawal and may limit the number of withdrawals permitted within a year Additionally, withdrawals can reduce the policy's death benefit, impacting the coverage provided to beneficiaries.

The nonforfeiture provision outlines the options available to policyowners when their cash value life insurance policy lapses or is surrendered It typically grants the right to choose from several nonforfeiture options if a renewal premium remains unpaid after the grace period These options include the cash payment nonforfeiture, reduced paid-up insurance, extended term insurance, and automatic premium loans, providing flexibility and protection for policyholders.

The cash payment nonforfeiture option allows policyowners who discontinue premium payments to surrender their policy and receive its cash surrender value in a lump sum When surrendering a cash value policy, the insurer deducts any applicable surrender charges, which are fees imposed when a policyholder cashes out the policy before maturity This option provides a secure alternative for policyowners to access remaining policy values if they choose to end their coverage.

REVIEW THE CLIENT’S RIGHT OF TERMINATION/ CANCELLATION AND

R EVIEW OF T ERMINATION / C ANCELLATION RIGHTS

The rapid rise in the global aging population significantly impacts economic, social, and political landscapes worldwide Vietnam leads Asia in population aging, ranking seventh globally, highlighting the urgent need for policies addressing the challenges of an increasingly aging society.

Vietnam’s impressive economic growth over the past two decades has significantly improved citizens’ living standards, promoting healthier lifestyles As a result, life expectancy has increased from 69.2 years in 2001 to 73.2 years in 2014, with projections estimating it will reach 80.4 years by 2050.

Between 1990 and 2015, the population aged 60 and above nearly doubled from approximately 5.6 million to 9.7 million, with projections indicating this number will triple over the next 20 years, highlighting significant aging demographic trends Conversely, the number of newborns and children under 15 declined sharply during this period The accompanying graph illustrates the shifting proportions of populations over 60 and under 15 from 1990 to 2025, emphasizing the growing aging population and decreasing youth demographics.

Despite increasing life expectancy, many elderly individuals in Vietnam face limited health and financial conditions According to the Vietnam Association of the Elderly, 73% of seniors lack social insurance or pension benefits, forcing them to continue working or depend on their adult children However, these inadequate income sources are insufficient to prevent old-age poverty, especially given Vietnam's status as a lower middle-income country In 2014, the average income per capita was only $2,052, although the country has seen a reduction in extreme poverty rates to 3 percent.

In 2014, the World Bank poverty line indicated that 13.5 percent of the population was living below the poverty threshold Despite economic growth, income per capita has not kept pace with Vietnam's rapid demographic transition Unlike the Western countries that developed first and then aged, Vietnam is experiencing aging while still in the developmental stage To address the challenges posed by this demographic shift, Vietnam is actively implementing comprehensive reforms.

Vietnam's age demographic trend from 1990 to 2025 reflects significant changes in the population structure The graph illustrates shifts in age proportions over this period, highlighting emerging patterns in the country's demographic landscape Understanding these trends is crucial for planning sustainable social and economic policies Accurate analysis of such data enables policymakers to anticipate future workforce needs and social support systems Overall, Vietnam's evolving age distribution underscores the importance of strategic planning to address demographic challenges ahead.

Social welfare systems primarily aim to ensure consumption smoothing by safeguarding individuals against sudden drops in income or depletion of savings Additionally, they focus on protecting against the risk of old age poverty, providing financial security during retirement These objectives help promote economic stability and improve overall well-being.

Vietnam’s current insurance system comprises three key components: the mandatory public-funded pension fund, known as Social Security or compulsory retirement pension; state-controlled supplementary pension funds; and voluntary pension funds managed by private entities Social Security serves as the first pillar of the social security system, providing mandatory coverage to ensure basic retirement benefits, while private pension funds represent the third pillar, offering additional voluntary savings options This structure aligns with international standards for comprehensive social security frameworks.

The Ministry of Labour, Invalids and Social Affairs (MOLISA) has finalized the study and drafting of a pilot project on supplementary pension policies, aiming to enhance retirement security for workers This initiative reflects MOLISA's commitment to developing comprehensive social welfare programs that support aging populations The pilot project is designed to address evolving demographic challenges and improve the sustainability of pension systems nationwide.

Each individual has a dedicated retirement account, in which assets accumulated are owned by the insured person and accessible upon reaching retirement age These accounts typically operate under a Defined Contribution (DC) payment structure While both insurance types aim to secure future financial stability, they differ significantly in aspects such as benefit calculation, risk allocation, and payout methods, highlighting the unique features and advantages of each.

Employees and employer groups participating in social security play a vital role in ensuring financial stability and social protection Engaging actively in social security contributions benefits both parties by safeguarding employee rights and fostering economic security Staying informed about the latest updates and regulations related to social security is essential for maintaining compliance and maximizing benefits Professional documentation, such as graduate theses and official correspondence, supports understanding and implementation of social security policies For the most recent information and resources, contact relevant authorities or visit official platforms.

MOLISA has proposed that the tax incentives for supplementary pensions will be higher than those for traditional pensions, encouraging individuals to save more for their future retirement This policy aims to enhance retirement savings by offering more favorable tax treatment on supplementary pension contributions, ultimately promoting financial security for retirees.

Many countries are reforming their pension systems from a traditional single-pillar model to a multi-pillar approach to address its inherent limitations Vietnam's pension policy exemplifies this global trend, highlighting the shift towards diversified retirement security strategies to ensure better sustainability and coverage.

Vietnam's primary pension system is the state-managed social insurance program, which is predominantly mandatory Employees are required to contribute 8% of their monthly salary, while employers contribute 18%, totaling a 26% contribution rate This single-pillar approach underscores Vietnam's reliance on a compulsory, government-controlled pension scheme to ensure social security for workers.

The participation rate in the mandatory social system remains relatively slow In 2013, there were approximately 10.6 million contributors, primarily from state-run organizations However, contributions to the voluntary pension system remain limited, indicating low engagement among other sectors.

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 Clients 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	Economic Law
Thể loại	Thesis
Năm xuất bản	2017
Thành phố	Ho Chi Minh City

Định dạng
Số trang	78
Dung lượng	1,61 MB