The third meeting under the theme of ‘Talking about the Human Rights of Older Persons’ took place online on April 14, 2021 with Prof. Giang Thanh Long. Giang Thanh Long is currently an Associate Professor at National Economics University in Vietnam; a Senior Researcher at Institute of Social and Medical Studies in Vietnam; an Affiliate Research Fellow of the Oxford Institute of Population Ageing at the University of Oxford, UK; and an Affiliate Senior Researcher at Menzies Institute of Medical Research at the University of Tasmania, Australia. Prof. Long’s research interests include ageing, social insurance and health insurance. His research outcomes have been published internationally and he was involved in drafting and reforming pension policy in Vietnam: he was a member of the drafting team for Vietnam’s Social Protection Strategy 2011-2020; a key member of the taskforce and research group for reforming the social assistance system in Vietnam 2017-2021 and social insurance reforms in 2017-2025 with a vision to 2050, both under the Ministry of Labour, Invalids and Social Affairs (MOLISA).
During the meeting, Prof. Giang Thanh Long talked about the characteristics of population ageing in Vietnam, the key aspects of and challenges to the current pension system in Vietnam, main (political) issues around pension policy reform, and some lessons and implications that can be drawn from the pension system (reforms) in Vietnam.
1. Population Ageing Trends in Vietnam
Vietnam has experienced rapid population ageing in recent years. The absolute population size increased by 11 million from 2009 to 2019, from 85.9 million to 96.2 million. Of this increase, the number of older persons (those aged 60 and above) increased by 3.9 million - from 7.5 million to 11.4 million. This means that older persons accounted for one-third of the total population increase in the last decade. One of the distinctive aspects of population ageing in Vietnam is a great degree of regional variation, with main causal factors being the total fertility rate and migration flows. For instance, due to rapid industrialization and urbanization, those regions with net migrant outflows of working age population tend to have a higher ratio of aged population who are left behind, often looking after their grandchildren. The Vietnamese population projections between 2014 and 2049 clearly show a rapid increase in older population, and a gradual decrease in younger populations. In fact, the speed at which Vietnam experiences population ageing is much faster than other comparable middle-income economies as categorized by the World Bank. The ratio of the older population is expected to grow from 11.86 % in 2019 to 18.57 % in 2034 and to 24.82 % in 2049. The number of years that the ratio of population aged 60 and above would take to double from 10% t0 20% in Vietnam is expected to be merely 15 years, compared to 25 years in Japan and 20 years in Korea. The rapidly ageing population amidst the breakdown of the traditional family that used to take care of older populations, together with low pension coverage and elder poverty, pose serious policy challenges.
2. The Vietnamese Pension System
The Vietnamese pension system sits within the overall social protection system. With drastic societal changes particularly since 1986, the Vietnamese government has introduced a modern pension system and implemented a series of pension reforms. Currently the pension system is divided into contributory pension scheme (social insurance) and non-contributory pension scheme (social assistance).
2.1. Contributory pension scheme
This scheme is designed as a pay-as-you-go defined-benefit scheme (PAYG DB). Normal retirement age is 60 for males and 55 for females. At least 20 years contribution is required. Contribution rate was 5% for employees and 10% for employers before 2010 and it increased by 1% point every two years during the period of 2010-2016. From 2016 onwards, the total contribution rate stands at 22%. Average salary, which is used as the base for estimating pension benefits, was different between state and non-state sectors before 2018, after which both use average life-time salary/wage. According to Decree 135/2020/NĐ-CP dated 18 November 2020, from 1 January 2021, retirement age has been readjusted: for each year, it will be increased each year by 3 months for males until 62 in 2028 and 4 months for females until 60 in 2035.
2.2. Non-contributory pension (or cash transfer) scheme
This scheme is designed as means-tested scheme to support older people aged 60-79 in poor households without familial support on the one hand, and as pension-tested scheme for those aged 80 and above who do not have any retirement or other social insurance benefits. Since the year 2000, the age coverage of social pension has gradually expanded, and the rate has increased. For example, older persons aged 90 years and above received 45,000 VND (or about 3USD) a month in 2000 and the rate increased to 6,500 VND (or about 4.2USD) in 2004. The age band eligible for social pension was lowered to 85 and above, while the rate increased to 120,000 VND (7.5USD) from April 2017. Subsequently, the age band entitled to social pension became again lowered to 80 and above in 2010 and the rate increased to 180,000 VND (9.5USD). The rate for those aged 80 and above continued to rise to 270,000 VND (13USD) in 2013 and will be 360,000 VND (15UDS) from July 2021. Having this social pension for older persons as the base, additional support is offered, taking into consideration a particular circumstance one is in. For instance, older people aged 80 and above who do not have retirement or other social allowance benefits receive 270,000 VND (13USD), and those in the same age group who are living in poor households without any support from relatives or other people receive twice of the base rate at 540,000 VND (26USD). Older people living in poor households without any support relatives or other people, eligible for public shelters, but are taken care by the community got three times the base rate at 810,000 VND (39USD).
3. Key Issues and Challenges
A low level of participation in the mandatory pension scheme is one of the most serious challenges to the current pension system in Vietnam. As of November 2020, 14.8 million workers are participating in the mandatory pension scheme, only accounting for 29% of the total labour force. Of this, 59% are employed in the public sector and by foreign companies. This means that very few workers in the non-public sector are currently participating in the mandatory pension scheme. Also, most workers with the mandatory pension system are mostly concentrated in the formal sectors in big cities. As of mid-November 2020, there are 877 thousand workers participating in the voluntary pension scheme, accounting for merely 1.6% of total labour force.
Another serious challenge that the current Vietnamese pensions system faces is that 50% of Vietnamese older persons are not covered by any pension benefits (as of end-2017). Of 11.2 million older persons aged 60 and above, 1.7 million persons are covered by social pension, 2.15 million workers in the formal sector receive contributory pension benefits and 1 million receive working capacity pensions. In other words, there is the so-called ‘missing middle’ that has no pension income between the top 20% of workers participating in mandatory pension scheme and the low 20% of older population. Therefore, one urgent task that the Vietnamese pension system has to tackle is filling the ‘missing middle’.
4. Towards a Multi-Tier Pension System
Together with the problem of the ‘missing middle’, Vietnam encounters issues that other countries commonly face. With the current design of the contributory pension scheme, it is projected by different studies that income will be equal to expenditure by 2033 and the scheme will be run on reserve in 2043. Furthermore, due to a high level of inflation, the purchasing power of social pension benefits has been in decline. In the context, Prof. Long proposes that reform should be directed towards creating a multi-tier pension system, in which the coverage of contributory pension is expanded. In addition, in order to resolve the problem of the ‘missing middle’, a minimum universal pension should be provided to those who do not have any pension income. While a multi-tier pension is often understood, particularly in the context of Western societies with well-developed pension and welfare systems, as a way to reduce the role of the state with the heightened involvement of private pension, it can mean an extended role of the state in developing countries such as Vietnam. In fact, Vietnam has continuously expanded its pension coverage. Vietnam is obliged to provide a minimum level of pension benefits to workers in compliance with the conventions set by the International Labour Organisation. Trade agreements that Vietnam signed, such as with the EU, demand the Vietnamese firms in the supply chain should comply with minimum labor standards. At the same time, the government has endeavored to help a larger number of younger generations to participate in the contributory pension schemes by improving transparency and information on their future pension income.
5. Universal Social Pension and the Human Rights of Older Persons
Various studies on the Vietnamese social pension system show that while the social pension benefit level is currently low (about 15USD) its old-aged beneficiaries enjoy a great degree of confidence and dignity. While the adequacy level of social pensions should be continuously raised, this highlights that having a basic pension income at older age should be seen as a part of the human rights of older persons. It is important to acknowledge that population ageing is a great socio-economic and health achievement and is an irreversible social trend. We should therefore try to adapt ourselves to it in the best possible way possible.
Prof. Long finally expressed that as a researcher working on ageing and the human rights of older persons for the last decades, he would be very happy to cooperate with and looks forward to working with the AGAC in joint-research projects and exchange programs on areas of mutual interest.
Hae-Yung Song(manji74@asemgac.org)