Vietnam's social insurance law revision one step closer to shared prosperity

Let me tell you a story about my family in Portugal.

My father is 1 of 12 brothers and sisters, from a small village in the north of Portugal.

My grandfather was an informal worker most of his life, and my grandmother was a stay at home mom her whole life.

When they grew older and needed support and care, they had no access to social insurance. But, thankfully, they had 12 children to help them and support them.

But Portugal, like Vietnam, has an aging population.

And, myself, I have only one brother. If both my parents had not been registered in social insurance their whole lives – which they were for over 40 years each(!) – instead of having 12 children to support them, they would have only two.

This is why, as societies and labor markets change ever more rapidly – through demographic, technology, climate change – so must policies.

This is why, whether in Portugal or Vietnam, a commitment by policy makers to continue to revise (or should we say improve?) laws and polices should be supported, congratulated and welcome by all.

More often than not, an educated discussion about the future, must start in the past. And must start with questions.

What is social insurance? Who is it for?

Social insurance is, at its core, an insurance system meant to provide citizens with support and protection against certain risks in life, such as old age, sickness or unemployment (among others).

But where does such support come from in social insurance? From workers' own contributions? From their employers' contributions?

No.

It comes from the system as a whole. From all those who contribute. Thus the "social" part of the name.

Social insurance is a system designed to help us take care of each other. Whether we work in an office in Hanoi, a coffee plantation in Dak Lak, or an industrial park in Can Tho. We are all contributing together to ensure that when one of us faces any risk through our life cycle, we are protected. We are supported.

But, systems, like people, must evolve.

The new proposed draft for the social insurance embodies such evolution and growth of Vietnam as a country and a society, by aiming to bring better protection to more workers.

Under the new draft law, more categories of workers will be eligible to participate in compulsory social insurance, and more workers will have access to retirement pensions as well. The latter becomes particularly important as the Vietnamese population continues to age.

The draft also proposes limitations to lump-sum payments which is important for more reasons than one might initially assume.

Workers wait to withdraw their entire social insurance contributions at an office in Thu Duc City, HCMC, January 2022. Photo by VnExpress/Thanh Tung

Lump-sum payments from social insurance not only compromises workers old age income security, but also leaves them unprotected against other risks. What happens to a worker who gets sick after taking a lump-sum payment? Or to a worker who loses his jobs? When workers take social insurance lump-sum payments, they are effectively using social insurance as their personal bank account of sorts, thus compromising the solidarity nature at the core of the system.

Further to that, we also must understand that workers have rights both as individuals, but also as a collective. And, allowing unlimited access to lump-sum withdrawals from social insurance, even if it respects workers' rights as individuals, can severely compromise their rights as a collective, as it negatively affects the financial sustainability of the system as a whole.

All these considerations should not ignore the fact that most workers access lump-sum payments from a place of need. Because they need more financial resources to cope with job loss, or to start a family, just to mention to examples. This relates significantly to the distinct sex and age patterns with respect to lump-sum withdrawals: according to VSS data, 69% of lump-sum withdrawals in 2019 were taken by women below the age of 35!

It is therefore vital that policy reforms, both present and future, continue to identify ways to provide better protection for workers in such circumstances. This can include:

- The introduction of child/family benefits in the social insurance system;

- Expanding access to childcare;

- Strengthening the activation component of unemployment insurance (training, job search assistance, etc.);

- Strengthening access to credit for workers looking to start their own business.

Together with such measures, successful addressing the issue of lump-sum withdrawals will also require increased coordination across policy realms, from social insurance to job creation, skills development, childcare, access to credit or social assistance.

Social insurance strengthening does not end with the ongoing law revision, and future policy reforms must continue to strive to bring more and more workers into the compulsory social insurance system, while improving existing benefits, and introducing new ones (such as child or family benefits).

But one cannot deny where this current social insurance law draft takes Vietnam:

One step closer.

One big step closer to Vietnam's long-term goal of providing social protection for all.

And that is something we must all, together, as a society, embrace.

*André Gama is the Social Protection Program Manager of the International Labor Organization (ILO) Country Office for Vietnam.