Vietnam's social security fund may fall short by 2021: ILO

Vietnam Social Security Fund (VSS) could start having deficits by 2021 and experience depletion by 2034 if no reforms are made, said a report by the International Labor Organization (ILO) launched here Thursday.

The report, titled "Actuarial Valuation of the public pension scheme of the Vietnam Social Security Fund", provides financial projection of the present public scheme of the fund and analyzes possible reforms that could increase the fund's sustainability.

Gyorgy Sziraczki, ILO Vietnam Director said that social insurance reform is like driving a big boat: the captain cannot wait until the last moment. Rather, he should start turning even before seeing the obstacles in front. Unfortunately, the ILO report shows that the obstacle is dangerously close.

Government, employers and workers need to work together urgently and find the right balance to ensure pensions now and in the future, Sziraczki added.

According to the ILO, Vietnam should gradually increase the retirement age to 65 for both men and women to ensure the fund's sustainability, considering there is and will be a substantial increase in life expectancy and a smaller ratio of the working population to pensioners.

ILO also points out that the country should extend the coverage of the VSS pension scheme and support the development of supplementary voluntary pension schemes. At present, only one fifth of the total workforce in Vietnam has social insurance.

Pham Minh Huan, Vice Minister of Labor, Invalids and Social Affairs, stressed that in the 2020-2050 period, the rate of aging for Vietnam's population would expect to be among the fastest in Asia. ILO projects are critical for the ministry to have the ground for future development plan of the social insurance and retirement policies.

The report shows that only 47 percent of all registered enterprises contributed to compulsory social insurance fund in 2010.

Vietnam started its aging phase when over 60-year-olds accounted for more than 10 percent of the total population in 2012, five years ahead of prediction. With fewer young workers in the future and a generous pension formula, the pension fund will be in jeopardy unless urgent measures are introduced in the reform.

Besides ensuring financial sustainability, other reforms would be needed to protect workers after retirement by making sure that employers and employees contribute to the social insurance fund based on the total income instead of the basic salary in line with the new Labor Code, said Sziraczki.