Summary of Doctoral thesis in Economics: Developing private voluntary funded pension funds in the stock market of Viet nam

The general objective of the dissertation is to identify the conditions for the development of private voluntary funded pension funds in Viet Nam stock market, thereby recommending policy implications for the development of private voluntary funded pension funds in Viet Nam stock market.

TRAN NGUYEN MINH HAI

DEVELOPING PRIVATE VOLUNTARY FUNDED

PENSION FUNDS

IN THE STOCK MARKET

OF VIET NAM

SUMMARY OF DOCTORAL THESIS IN ECONOMICS

MAJOR: FINANCE - BANKING

CODE: 9 34 02 01

SUPERVISORS

TS LE THI THANH HA, PH.D

TRAN THI KY, PH.D

Ho Chi Minh City - 2018

The thesis is completed at

BANKING UNIVERSITY HO CHI MINH CITY

SUPERVISORS

1 LE THI THANH HA, PH.D

2 TRAN THI KY, PH.D

BANKING UNIVERSITY HO CHI MINH CITY

Time & Date

The thesis can be found at

THE NATIONAL LIBRARY

LIBRARY OF THE BANKING UNIVERSITY HO CHI MINH CITY

LIST OF PUBLICATIONS RELATED TO THE THESIS

In the course of the thesis, a part of the dissertation was used for publication in journals and specialized seminars in the field of economics - finance - banking in order

to increase the credibility of the thesis through the reviews of the prestigious experts and readers

Specific articles are as follows:

Tran Nguyen Minh Hai (2016) Developing private voluntary funded pension funds in

the securities market of Viet Nam Financial and Monetary Market Review, Vol

22 (463), November, 2016, pp 21 - 27

Tran Nguyen Minh Hai (2017) An overview of pension system reform: World trends

and in Viet Nam context Journal of Development and Integration, Vol 34 (44), May - June, 2017, pp 88 - 93

Tran Nguyen Minh Hai (2018) The impact of private voluntary funded pension funds

on the stock market: the case of APEC economies Proceedings of the first international conference on Vietnam’s Business & Economics Research 2018 (VBER 2018), July 22 - 24, 2018, Ho Chi Minh City Retrieved from http://vber.ou.edu.vn/speakers-slides/

CHAPTER 1 INTRODUCTION

1.1 Reasons for selecting the topic

For a long time, the development of financial intermediaries in the stock market has been the subject of much research interest from theory to practice One

of the financial intermediaries is the voluntary funded pension funds, formed from the process of reforming the national public pension system in the context of an aging population and gradually becoming an important large institutional investor in the stock market Meanwhile, in the world, the traditional PAYG pension system is gradually being replaced by a (fully/partially) funded pension system The introduction of a funded pension system allows pension funds to voluntarily accumulate funds for investment in financial markets This accumulation is expected to increase the depth and liquidity of the capital market At the same time, with their accumulated assets and long-term capital, private voluntary funded pension funds have the incentive to invest more in long-term and illiquid assets to generate higher returns, then they also contribute to long-term funding for the capital market in general, the stock market in particular (Davis, 1998, Davis, 2000)

In the world, there are many empirical studies on the development of private voluntary funded pension funds for the growth of the stock market (Catalan, Impavido & Musalem, 2000, Walker & Lefort, 2002, Impavido, Musalem & Tresselt, 2003; Meng & Pfau, 2010; Liang & Bing, 2010; Rocholl & Niggemann, 2010; Raisa, 2012; Hu, 2012; Zandberg & Spierdijk, 2013; Sun & Hu, 2014) Although these empirical studies use different quantitative models in order to find reliable estimation methods and time periods for different data sets, most conclusions show a consistence about the meaningful positive role of private voluntary funded pension funds in the development of the capital market Accordingly, these empirical studies confirm the role of institutional investors of the private voluntary funded pension funds and the need to develop these funds in the stock market However, most of these empirical studies have encountered

limitations on the number of observable variables, namely that the available observed time is not long enough On the other hand, these above research focus on the developed countries of the OECD as well as the emerging markets According

to the Asian Development Bank (ADB), retirement markets in Asia and the Pacific region are rare in existing literature (Hu, 2012)

Asia-Through this study, the topic provides new empirical evidence for the voluntary funded pension funds’ development relationship to the growth of the domestic securities market in APEC economies (Asian Pacific Economic Cooperation) The research examines the impact of voluntary funded pension funds’ assets on the development of the stock market through the unbalanced panel data collected during the period 2000 - 2015 and using macro economic - social factors

as explanatory variables for controlling in the regression models The results show that there is a positive relationship between the voluntary funded pension funds’ assets and the development of the stock market at a 1% significant level while other factors unchanged in the period of 2000 - 2015 The results from the quantitative analysis of the regression model of the author's study also confirmed the findings from previous studies on the positive correlation between the growth of private voluntary funded pension funds and the development of the stock market Therefore the author believes that the thesis will contribute to the debate on the effects of private voluntary funded pension funds’ development on the Asian capital markets and financial markets

Being one of the APEC member economies, Viet Nam is a developing country with a low average per capita income compared to other economies in the region and in the world despite the stable GDP growth rate in recent years Therefore, Viet Nam is likely to face the situation of "aging before getting rich" in the context of increasing the aging population Therefore, ensuring social security is

an urgent issue that needs to be addressed thoroughly, including ensuring pension in the old age Meanwhile, the public pension system of Viet Nam operates under the PAYG mechanism with defined benefit (DB) schemes leading high burden on

pension payment which is increasing significantly in the coming decades Thus, the public pension system of Viet Nam implies the financial instability and inequities among generations (Giang Thanh Long, 2004) Moreover, the pressure to pay pension is increasingly heavy on the Viet Nam Governmental budget in the future, consequently contributing to the Governmental budget deficit, resulting in negative impact on the overall financial situation (MOF, 2015a, Luu Hai Van, 2014) Therefore, Viet Nam has implemented pension reforms but these reforms are mainly in parameters (Giang Thanh Long, 2004, Dieu Ba Duoc, 2013, MOLISA, 2015)

In 2013, the Ministry of Finance's announcement of Circular No 115/2013 / TT-BTC guiding private voluntary funded pension insurance and vprivate voluntary funded pension schemes in Viet Nam marked a turning point for the Vietnamese pension system as well as introducing new financial intermediary in the role of institutional investors in the stock market of Viet Nam This event has shown the interest of the Government and other stakeholders in the development of private voluntary funded pension funds in Viet Nam stock market in order to meet the needs of society and the market as well as contributing to the development of the stock market since the development of Viet Nam stock market is still evaluated and ranked low compared to other stock markets in Asia-Pacific region and in the world (WEF, 2015) due to the quantity and quality of goods delivered (VSD, 2015) as well as activities of market institutional participants are still very limited (SSC, 2012)

Although the development of private voluntary funded pension funds in the stock market in Viet Nam is concerned by the Government and other stakeholders

to meet the needs of society and the market as well as contributing to the development of the securities market, Viet Nam still lacks studies on developing this type of fund Most studies have been conducted after the Ministry of Finance has issued Circular No 115/2013/TT-BTC guiding voluntary pension insurance and private voluntary funded pension plans/schemes in Viet Nam, focusing only on (i)

situation and the challenge of retirement in the context of aging populations and (ii) the role of private voluntary funded pension funds in a multi-pillar pension system (Dieu Ba Duoc, 2013, Khuat Thi Kieu Van, 2013; TTBD, 2014; Chi Tin, 2014; Luu Hai Van, 2014; Nguyen Thi Le Thu, 2014, Tran Phuong Thao & Nguyen Anh Tuan, 2014, Luong Xuan Truong, 2014, Bui Cam Huong, 2014, Thuy Duong, 2017)

Therefore, within the research scope of the thesis on developing private voluntary funded pension funds in the stock market, private voluntary funded pension funds are focused on analysis afor the following main reasons:

 Firstly, the private voluntary funded pension fund is a long-term institutional investor in the stock market Voluntary pension funds have contributed to the instistutional investor base in the development of the stock market when (i) providing large scale, stable, long-term capital to the stock market and (ii) simultaneously holding a large portion of financial assets as well as constantly developing with increasing asset volume in the stock market

 Secondly, private voluntary funded pension fund is a pillar of the nation's pension system, contributing to the improvement of pension after retirement, contributing to social security in the context of an aging population and the burden of the public pension system is growing

For these above reasons, within the framework of the thesis entitled

"DEVELOPING OF PRIVATE VOLUNTARY FUNDED PENSION FUNDS

IN THE SECURITIES MARKET OF VIET NAM", the study focuses on the

systematization of the general theories related to developing private voluntary funded pension funds, the position of private voluntary funded pension funds in a multi-pillar pension system, criteria for evaluation as well as conditions for the development of private voluntary funded pension funds in the stock market from theoretical reviews to empirical evidences in order to supplement and contribute to the understanding of the development of private voluntary funded pension funds in

the stock market and the development of private voluntary funded pension funds in the stock market of Viet Nam

In particular, the study conducted online surveys for individuals and investors who are Vietnamese citizens and knowledgeable in the field of finance - insurance in order to collect information about their choices to private voluntary funded pension funds based on (i) the level of financial literacy and attitudes to risk; (ii) interest and personal behavior in pension

At the same time, the study also examines the impact of private voluntary funded pension funds' development on the development of the stock markets of some economies in the world, namely the APEC economies and proposes some recommendations to develop private voluntary funded pension fund in the Viet Nam stock market

1.2 Research objectives and questions

1.2.1 Overall research objectives

The general objective of the dissertation is to identify the conditions for the development of private voluntary funded pension funds in Viet Nam stock market, thereby recommending policy implications for the development of private voluntary funded pension funds in Viet Nam stock market

1.2.2 Specific research objectives

To address the general research objectives, the thesis focuses on addressing specific objectives as follows:

 Analyzing the situation of pension reform in Viet Nam and developing private voluntary funded pension funds in Viet Nam stock market

 The impact of private voluntary funded pension funds to the stock markets of economies in the world, particularly APEC economies, in which Viet Nam is

an economy member

 Policy implications and recomendations to develop private voluntary funded pension funds in Viet Nam stock market

1.2.3 Research questions

From the specific research objectives, the thesis solves the following research questions:

 What are the conditions for developing private voluntary funded pension funds in the stock market through the PESTLIED model? How has the development private voluntary funded pension funds in Viet Nam stock market been achieved?

 Developing private voluntary funded pension funds in the stock market that impacts on the development of the stock market in the economies of the world, namely, APEC economies What are the experience lessons learned from empirical research on the development of private voluntary funded pension funds in the stock market of APEC economies drawn up for the developing of private voluntary funded pension funds in the stock market of Viet Nam?

 How are Vietnamese individuals aware of issues related to private voluntary funded pension funds, private voluntary funded pension funds' development

in the stock market and the demand for private voluntary funded pension funds in the stock market of Viet Nam?

 From the results of research on the impact of the private voluntary funded pension funds' development on the growth of the stock market in APEC economies and the results of the online survey on individual needs of Vietnamese citizens, what are the possible solutions? What are the recommendations for developing private voluntary funded pension funds in the stock market of Viet Nam?

1.3 Research scope and subjects

1.3.1 Research subjects

The research subject of the thesis is developing of private voluntary funded pension funds in the stock market

1.3.2 Surveyed participants

 Private voluntary funded pension funds in the stock markets of selected economies, in particular APEC economies, to consider the impact of developing private voluntary funded pension funds on the stock market as well as the conditions for reveloping private voluntary funded pension funds

on the stock market of these APEC economies

 Individuals and investors who are Vietnamese citizens and knowledgeable in the finance and insurance sector in order to explore their options for private voluntary funded pension funds and developing private voluntary funded pension funds in Viet Nam stock market

1.3.3 Research scope

 For secondary data

The dissertation uses secondary data collected from empirical studies, written documents, reports, and reliable sources from international organizations such as the World Bank (WB), the International Labor Organization (ILO), the Organization for Economic Cooperation and Development (OECD) updated for the period from 2000 to 2015 on the development of private voluntary funded pension funds in the stock market, the formation and development of the Viet Nam stock market, the reform of pension system of Viet Nam from 2000 to 2015, updating related information in 2016, 2017, 2018

 For primary data

For primary data sources, research conducted online surveys from February

24, 2018 to March 15, 2018 for individuals and investors who are Vietnamese citizens and have knowledge in the field of finance - insurance to collect information on their choices to private voluntary funded pension funds, based on (i) level of financial understanding and attitudes toward risk; (ii) personal preferences and behaviors in pension

1.4 Research methodology

1.4.1 The approach methods

Study on the acquisition and inheritance of theories as follows: (i) the theory

of development of financial intermediaries in the stock market (David, 2000, Claus

& Grimes, 2003, Andrieş, 2009, Enache, Miloş & Miloş, 2013); (ii) stakeholder theory (Phillips & Reichart, 2000; Freeman, Wick & Parmar, 2004; Buchholz, 2004); (iii) theory of making financial decision (Franzen, 2010); (iv) theory of long-term asset allocation (Valdés-Prieto, 2008; Viceira, 2010; Falkenheim, 2015)

These theories are also the basis for the selection of the research on the private voluntary pension fund and the development of private voluntary pension funds in the stock market The study also consulted the empirical studies on the relationship of private voluntary pension funds' development for the development of the stock market as a reference and as a basis for comparing and contrasting survey results and quantitative analysis results

1.4.2 Data collection methods

 For secondary data

The research is based on the collection of secondary data from reliable sources of references from international organizations such as the WB, ILO, OECD and research papers published in specialized journals related to economic, financial and insurance for the period 2000 to 2015 Secondary data is used to consolidate the rationale since the concept of private voluntary funded pension funds was developed and introduced in the multi-pillar pension system by WB as well as investigated through the development of private voluntary funded pension funds for the growth of stock markets, the conditions for developing private voluntary funded pension funds in the stock market, particularly in APEC economies

 For primary data

In addition, primary data is also collected through the process of surveying individuals and investors with knowledge of finance and insurance For primary

data collected through an internet survey (goo.gl/PsEzXV), the study received 223 submissions of respondents in comparison to 10,240 visits in the 24-day period from February 24, 2018 to March 15, 2018 with 215 valid votes

Questions were answered through personal electronic devices connected to the internet by participants, so respondents (i) were not affected by the surveyor's perspective; (ii) no sense of urgency or being forced into responding; and (iii) complete anonymity when responding Questions designed in the form of mandatory completion if respondents want to move to the next question to help the participant do the survey without missing out on any questions Participants are not paid for answering this survey The survey consists of 32 questions divided into 4 parts: (i) personal information, including 7 questions; (ii) self-assessment of financial literacy and risk-taking when making financial decisions in many respects, including 9 questions; (iii) the individual's behavior, priority and level of investment in pension with the existence of the defined contribution (DC) schemes, including 8 questions; (iv) the current context of Viet Nam, consisting of 8 questions

The survey respondents were individuals who were or would soon become participants in private funded pension plans/schemes, including private occupational/employee funded pension schemes and private individual/personal funded pension schemes alongside public unfunded pension system - Pay as You

Go defined benefit system in Viet Nam Therefore, individuals selected for the survey are Vietnamese citizens aged 18 years or older who have paid jobs, or are looking for work or have listed their first job according to the study major of their education and training

1.4.3 Data processing methods

The research uses qualitative methods to analyze macro factors in the PESTLIED model (Political, Economic, Sociological, Technological, Legal, International, Environmental, Demographic factors)

At the same time, the study also incorporates the use of quantitative analysis

of unbalanced panel data for APEC economies between 2000 and 2015 to examine the relationship between development ptivate voluntary funded pension funds with the growth of the stock market in APEC economies and statistical methods that describe the results of online surveys on the choice of individuals

1.5 Framework of the research process

Research content

Describing the conditions for the development of private voluntary funded pension funds in Viet Nam stock market using the PESTLIED model; Determining the impact of developing private voluntary funded pension funds in the stock market and the conditions for developing private voluntary funded pension funds in the stock market of APEC economies by estimating the regression model by the method Pooled OLS, FE, FE - cluster, RE; Statistically describing the understanding and needs of individuals who are Vietnamese citizens

on issues related to private voluntary funded pension funds, the development of private voluntary funded pension funds in the Viet Nam stock market

The need to developing private voluntary funded pension funds in Viet Nam stock market

Research problem

Developing private voluntary funded pension funds in Viet Nam stock market

Identifying the conditions for the development of private voluntary funded pension funds in Viet Nam stock market, thereby recommending policy implications for the development of private voluntary funded pension

Research methodology

- Approach methods: Theory of financial intermediation development on the stock market, stakeholder theory, behavioral finance theory, long-term asset allocation theory, and domestic and foreign empirical studies on developing private voluntary funded pension funds in the stock market

- Data collection methods: Secondary data from international organizations WB, ILO, OECD , primary data from online surveys of individuals who are Vietnamese citizens

- Data processing methods: Combination of qualitative analysis (PESTLIED model, descriptive statistics )

and quantitative analysis (Pooled OLS, FE, FE - cluster, RE)

Developing private voluntary funded pension funds in the stock market

1.6 New contributions

 The thesis presents the conditions for the development of private voluntary funded pension funds in the Viet Nam stock market using the PESTLIED model, which summarizes the trend of pension reform in Viet Nam, analyzes the current situation of developing private voluntary funded pension funds in the stock market of Viet Nam

 The thesis evaluates the impact of developing private voluntary funded pension funds on the development of stock market in APEC economies, and the empirical results of the empirical study show the impact of private voluntary funded pension funds's development to the development of the stock market in APEC economies

 The thesis examines individuals who are Vietnamese citizens to analyze their attitudes toward risk acceptance, the level of understanding of private voluntary funded pension funds, the conditions for developing private voluntary funded pension funds in the stock market of Viet Nam

 The thesis analyzes the prospect of developing private voluntary funded pension funds in Viet Nam stock market and proposes some recommendations on the conditions for developing private voluntary funded pension funds in Viet Nam stock market

1.7 The composition of the thesis

To reach the research objective, the thesis is shown in the configuration 5 chapters with the list of references and 7 appendice in order to strengthen the contents of thesis