Vietnam faces pension system crisis

Four factories employing more than 90,000, owned by Taiwanese footwear manufacturer Pou Chen Corp., halted production last week as workers protested new pension rules that go into effect next year aimed at boosting the retirement programme.

The new law prevents laborers from being eligible for lump-sum social insurance payments when they leave companies. To bring back those on strike, Prime Minister Nguyen Tan Dung’s government will propose amendments to the law to meet worker’s demands of payouts when they quit a job.

The factory protests underscore the hard choices Vietnam’s government must make to revamp its pension system. The country’s social security fund is forecast to have deficits beginning in 2021 and risks being depleted by 2034 without reforms, according to the International Labour Organization.

“The challenge is the government cannot bear a sustainable pension system if there are no contributions,” Gyorgy Sziraczki, Vietnam director of the International Labor Organization, said by phone. “It’s a very, very hard dilemma.”

The change in the law laborers protested is designed to encourage them to save more money for retirement, Doan Mau Diep, deputy labor minister, said by phone. Under the current law, employees are permitted to withdraw money from their pensions with a penalty that reduces future government retirement payments, he said.

“What we were trying to do is to offer workers a more secure life at their retirement ages,” Bui Sy Loi, vice chairman of social affair committee at the National Assembly, said by phone. “However, if workers don’t want that change, we can roll it back and add that as one of the options in the new law.”

About 500,000 workers take lump-sum allowances from the social security fund every year, Loi said. The number of individuals taking their pension savings before retirement has increased in recent years, he added.

Many factory workers view their jobs as temporary and plan to use pension savings created by mandatory paycheck deductions to start a business or help their families when they return to their villages, Sziraczki said. There are relatively few micro- finance programs available to help them, he said.

In reforming the system, Vietnamese leaders must grapple with a citizenry that distrusts government institutions, Dane Chamorro, managing director for Southeast Asia at global business risk consultant Control Risks, said by phone.

“The people fundamentally don’t trust their government to follow through on the fact that the money will be there and it will be paid out,” he said.

Pension crisis

Vietnam is not alone in facing a pension crisis. Similar patterns are occurring across Asia, Sziraczki said.

A number of countries in the Organization for Economic Co- operation and Development are grappling with future social insurance deficits, according to a 2012 Asian Development Bank report.

The Republic of Korea (RoK), with the fastest-aging population in the OECD, told employers to provide retirement plans for staff starting in 2016 after realizing that its state pension fund may go broke by 2060, when its population over 65 is set to triple.

Germany and the UK plan to raise their retirement ages to 67 from 65, while Australian Treasurer Joe Hockey wants to increase the threshold to 70, the highest in the world.

Singapore’s government has made it mandatory for companies to offer three more years of work to those turning 62, the official retirement age, and plans to extend that to five years by 2017.

Efforts by the Vietnamese government to raise the retirement age in the past two years have been rejected by lawmakers.

Vietnamese policy makers have discussed making the country’s voluntary pension system more attractive by providing matching government funds, though that idea was put aside because of state budget deficits, Sziraczki said.

As of 2010, the mandatory pension program covered about 9.3 million Vietnamese, or 20% of its labor force, the ADB said. The voluntary system covered 62,000 persons.

Pou Chen expects the four factories affected by work stoppages to be operational this week, said the company. Some workers say they will strike again or quit if the government does not quickly amend the new pension law.

“If the government does not change the social insurance law, up to half of the factory’s workers will quit their jobs so they can be eligible to collect social insurance payments before the new law takes effect,” Le Van Tin, 30, a striking worker at Pou Chen’s Ho Chi Minh City factory, said in an interview. “We cannot work as factory workers our whole life.”