The draft amendment of Vietnam's Social Insurance Law in 2023 has garnered significant attention from the Vietnamese public, as it is regarded as one of the most substantial macro-level changes related to social welfare goals in decades. While contributing their opinions to the draft amendment, many experts, labor representatives, and labor users have highlighted certain discrepancies within the draft, posing potential adverse effects on societal stability.
This article will outline three noteworthy points in the current draft law that have attracted considerable public interest:
Gender disparity in pension benefits due to reduced minimum social insurance years to 15
In the proposal submitted to the National Assembly, the government suggested reducing the minimum years of social insurance contributions required to qualify for pension benefits from 20 years to 15 years. This reduction aims to support older workers who, due to various reasons, have been unable to contribute to social insurance for the full 20 years.
However, reducing the minimum contribution years also diminishes the corresponding rights of both male and female workers. Previously, with a minimum of 20 years of contributions, male workers received 45% of their average monthly social insurance contributions as their pension, while female workers received 55%.
This disparity was established in the 2014 Social Insurance Law, reflecting the reality that men tend to have longer working lives due to better health conditions, thus contributing to society for a longer period. However, this perspective has been met with criticism, with some arguing that it overlooks the additional responsibilities and sacrifices that women bear, such as raising children, which do not impact men's careers.
The 2006 Social Insurance Law initially stipulated a 15-year minimum contribution period for both men and women, with a 45% pension rate. The 2014 amendment gradually increased the minimum contribution period for men to 20 years while maintaining 15 years for women.
In the current draft, the pension rates remain unchanged, with male workers retiring after a minimum of 15 years' contributions receiving 33.75% of their average monthly contributions, while female workers still receive 45%. For the period between 15 and 20 years of contributions, male workers will receive an additional 2.25% for each year, reaching the 45% rate at the 20th year. Female workers, on the other hand, will receive an additional 2% for this period. Beyond the 20th year, both male and female workers will receive 2% for each year until reaching the maximum of 75% of their average monthly contributions, corresponding to 35 years for men and 30 years for women.
This reduction in the minimum years of contributions is expected to expand social welfare coverage in Vietnam, where currently only 38% of the workforce participates in the social insurance system. By ensuring a fixed pension for those eligible, even if it constitutes just over 30% of their social insurance contributions, this change will bring stability to society. The government can then allocate limited resources to other areas.
While some support this proposal, others argue for maintaining the current 20-year contribution period to avoid excessively low pension rates and ensure fairness for workers. However, reducing the minimum contribution period provides an additional choice for workers. If they wish, they can opt for a pension higher than 33%, especially during the period from the 15th to the 20th year for male workers.
Having the option to receive a pension earlier assists workers who are no longer employable due to age but are not yet eligible for retirement, preventing extreme measures such as resorting to loan sharks or withdrawing lump sum social insurance prematurely.
Eliminating the option of lump sum social insurance withdrawal for workers joining after 2025
In the earlier versions of the draft amendment of the Social Insurance Law, there was a proposal for a lump sum social insurance withdrawal, limited to those who joined the system before the law's effective date (prior to January 1, 2025). Those joining after this date would not have this withdrawal option.
However, in the latest draft of the law, the proposed effective date has been shifted to July 1, 2025, while the content of the previous proposal remains intact.
The current draft of the Social Insurance Law amendment presents two options:
- Option One: Only those who joined the system before the law's effective date can make a lump sum withdrawal. Those who enroll after this point are not eligible for this option, except for individuals who reach retirement age but do not have the required years of contributions, those who emigrate, or those facing life-threatening illnesses.
- Option Two: There is no distinction based on the number of years contributed. All workers with less than 20 years of contributions can make a withdrawal after one year of non-participation, capped at 50% of their total contributions to the Retirement Fund. The remaining years' contributions would be preserved for future benefits. This option does not limit the number of times a worker can make withdrawals.
This proposal has sparked concerns nationwide, particularly among industrial workers, who fear the adoption of the second option. They worry that being limited to a lump sum withdrawal of a maximum of 50% might not be sufficient. While subsequent withdrawals are still possible, the lack of specific guidelines heightens worker anxiety, specifically in regards to the potential time wasted dealing with administrative procedures.
Under the current regulations, to be eligible for a lump sum social insurance withdrawal, a worker must not participate in the system for one year. Some workers evade this requirement by reaching agreements to continue working without contributing to the social insurance fund. With this approach, workers retain 10.5% of their salary (which would otherwise be contributed) and employers retain 21.5%.
However, the concerns of these workers might not be entirely necessary because the first option is more likely to be approved. This option would have a lesser impact on workers' rights compared to the second one. The lack of impact means it applies to workers already within the system, not those who join after July 2025.
Workers joining after the law's effective date will not face a significant policy shock since they will not need to weigh the decision to withdraw or not, easing concerns about the potential collapse of the current social insurance system.
This proposed change marks a significant turning point in the history of Vietnam's social insurance system. It is expected to strengthen the nationwide social welfare network, providing stability for the country's social security structure.
Increasing benefits for people receiving social retirement allowance
In the assessment report evaluating the impact on the budget and the Social Insurance Fund when supplementing certain provisions in the amended Social Insurance Law, the Ministry of Labor, Invalids, and Social Affairs presented a report that the budget expenditure will increase from 2025-2030 to 30,000 billion VND. This increase is due to the raising of social retirement allowance from 360,000 VND to 500,000 VND per month and reducing the eligibility age from 80 to 75.
According to the draft law, individuals aged 75 and above who do not receive a pension or any other form of allowance will receive monthly social retirement allowance along with free health insurance cards from the state budget. Currently, statistics from governmental agencies indicate that there are approximately 1.5 million people aged 80 and above receiving monthly social allowance. By lowering the eligibility age from 80 to 75, an additional 800,000 elderly individuals will be covered. It is estimated that there will be 1.24 million people between the ages of 75-80 in Vietnam by 2025, increasing to 1.31 million by 2030.
Coupled with the monthly increase of 140,000 VND, totaling 1,680,000 VND annually, the state budget plans to increase expenditures by nearly 10,000 billion VND compared to the current 20,500 billion VND.
However, many citizens argue that the proposed monthly allowance of 500,000 VND for individuals over 75 is inadequate and insufficient for their monthly expenses, especially considering they have no other sources of income (eligibility for social retirement allowance requires no other income). From a humanitarian perspective, this support is deemed insufficient. However, from an economic and societal standpoint, it is considered reasonable. This is because those receiving social retirement allowance have not contributed to the social insurance fund throughout their working lives, or if they have, they withdrew their contributions entirely through a lump sum withdrawal.
Individuals eligible for a pension are workers who consistently contributed to the social insurance fund for decades. Hence, they receive assurance in the form of a pension in their old age.
In essence, social retirement allowance is merely a humane support, not a compulsory requirement in Vietnam. From a more extreme perspective, those receiving retirement allowance are individuals who have benefited from the social insurance system without making any contributions. This is the main reason why many oppose the proposal to increase the level of social retirement allowance and lower the eligibility age to 75.
To implement this policy, Vietnam would need to balance its budget by reducing expenditures in other areas that directly affect contributing workers, such as infrastructure development and building public schools with incentives for the children of contributors to the social insurance system.
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