Workers don't want social insurance? Change the system

The fund has a balance of about US$36 billion, and the number of clients is in the tens of millions.

However, the fund does not release its financial reports, and I am only allowed to use the money once I am past my retirement age. That means I will have to wait another 35 years to know how effective my investment has been. The people running the fund frequently complain about the risk of illiquidity and defaulting, but they have made no significant commitment to tackling the risks of currency slippage due to inflation.

If an opportunity presents itself, do you think I should withdraw from the fund?

The fund I am talking about here is the Vietnam Social Security (VSS).

My concern is probably also the same concern for millions of people at this time — when a draft of the revised Law on Social Insurance is up for discussion. The proposal that most people pay attention to suggests that those who choose to take a one-time withdrawal would only be allowed to withdraw 50% of their contributions.

According to the current policy, people with social insurance are only eligible to receive their pension 20 years after paying their premiums. The conditions for withdrawing social insurance at one time are quite easy to fulfill at the moment. Participants of Vietnam's mandatory social insurance scheme can withdraw it after one year of unemployment; and voluntary participants after one year of not paying premiums.

According to a resolution of the Party Central Committee in 2018 on reforming social insurance policies, the minimum period of social insurance payment to enjoy a pension can be reduced from 20 to 15, even 10 years, creating more relaxed conditions for employees to enjoy pension early. The government plans to develop this policy and submit it to the National Assembly for adjustment and approval soon.

From a state management perspective, there is a valid reason for that proposal. Vietnam is entering a period of ageing population, and if the social insurance system remains unchanged, it will be difficult for the state to shoulder the increasing social security costs. To have employees and employers alike contributing correctly and sufficiently to social security could help reinforce the welfare network, ensuring a smooth transition from a young population to an ageing population.

Labors line up since dawn at a branch of Vietnam Social Insurance in Ho Chi Minh City's Thu Duc City to withdraw their social insurance, December 2022. Photo by VnExpress/Thanh Tung

But for most laborers, barely anyone cares about the macro perspective. Some consider social security a form of savings in case of emergencies. This explains the spike in the number of people opting to the one-time withdrawal in the past two years, as the impact of the pandemic and the waves of layoffs have left many people in dire need of money to overcome immediate hardship or to rebuild their lives post-unemployment.

For some others, social security is a burden as it causes them to lose part of their monthly income without knowing what benefits they would receive down the line. They prioritize immediate income rather than future benefit. Therefore, they even agree to businesses evading making social security contributions, meaning their salary is not deducted, even though in theory this would be at their own expense.

These views explain why the social security participation rate is stuck at just 38% of the workforce, and the number of people opting for the one-time withdrawal has seen record-high increases in the past two years.

I doubt that laborers actually do not care about pensions in their old age. Vietnamese people have been obsessed with having a pension book since the subsidy period, when everything was drip-fed by the government for around 10 years before the Doi Moi (Reform) in 1986. But on the other hand, because of this, they are forced to weigh their current needs and future interests against their money. The way the current social insurance system, especially VSS, operates, has yet to make laborers feel secure.

Firstly, despite being one of the funds with the highest contribution rates in Asia, VSS lacks the necessary transparency and accountability. You will be disappointed if you try to look for information on the fund's activities on its homepage, whether as an investor or as a client.

VSS does not publicize financial statements explaining how it is managed and invested, or its profits and losses as expected of a fund with tens of billions of dollar. According to regulations, the State Audit Office audits the fund every three years, and only during those would some financial information be released through the press. This lack of information, coupled with warnings about the possibility of the fund defaulting, have added to laborers' worries that they might lose their pension books or that their pension will not be able to keep up with inflation.

Very few wise investors would put their money into such a product on the financial market. And same goes for laborers if they could have other options.

Secondly, an effective social insurance system needs to be fair as even for people without pension, the state still needs to spend a certain amount of money on supporting them in their old age. The number of elderly people without pension is estimated to be around 13 million by 2030.

Currently, measures to ensure correct and sufficient contributions to social insurance are still very limited. According to VSS's statistics, out of the 480,000 businesses that were operating and had registered for tax codes in 2015, only 199,500 businesses, or 42% of them, participated in social security.

The fund's accumulated debt has reached VND13 trillion by the end of 2022. And this figure does not include unofficial workers in official sectors, namely those employed in businesses, agencies and organizations that are registered for but not entitled to social insurance. According to statistics, about 6.4 million people fell into this category in 2016.

The main reason behind this situation stems from VSS's supervision and management capacity. The entire social insurance sector has about 1,500 inspectors, meaning on average each officer is in charge of about 100,000 people. Maintaining oversight is therefore impossible.

The International Labor Organization (ILO) recommends that this ratio should fall between 1,000-2,000 people per official.

Another issue is that the current social insurance system operates with the function of a state management agency instead of a service that prioritizes serving its customers. Despite many improvements, the set of social security-related administrative procedures for individuals still includes 25 procedures. The long lines of people waiting to claim their one-time social security payment in many localities is testament to that cumbersomeness.

By switching to operating as a service, VSS could diversify its portfolio and personalize its investment decisions according to the needs of laborers. Currently, the majority of the fund (about 86%) is borrowed by the state through direct loans to the state budget or through the purchase of government bonds. The rest is deposited into major commercial banks in the form of loans or savings accounts.

Instead of restricting it, VSS should expand the list of cases in which people are allowed to get the one-time withdrawal to cover more urgent needs of laborers such as the need to buy housing, pay for healthcare or invest in their children's education. This is something that successful social insurance funds in Southeast Asia such as those in Singapore and Malaysia have been doing for a long time.

Social insurance is first and foremost a right and benefit of laborers. Instead of focusing on arguing about whether to keep or withdraw, the amendment this time should aim to better serve laborers and businesses. If people could see that the fund operates transparently, efficiently and that their rights and benefits are guaranteed, I believe everyone will want to keep this "security net" for them in their old age. And to achieve that, they would fulfill their social security obligations on their own without the need of any regulations.