ILO senior specialist on social security Nuno Cunha (Photo nguoiduatin.vn)Hanoi (VNS/VNA) -Nuno Cunha, ILO senior specialist on social security, has stressed the need forVietnam to increase retirement age in an interview granted to Vietnam mediaregarding a recent proposal to increase the retirement age of Vietnameselabourers.
The following is theinterview.
Q: Is it possible to keep the current retirement age by increasing theperformance of the social insurance funds investment?
A: The performance of the social insurance funds can indeed play a long-termrole in the sustainability of the fund, but the pace of demographic change withsuch a fast growing elderly population creates challenges that can only besolved by changing system parameters. One of those changes is the retirementage. Increasing the retirement age is a trend seen in several countries in theregion, and when compared with other countries with the same life expectancythe age of retirement in Vietnam is evidently low.
We understand that people are not happy with an increase in retirement age andit is indeed a difficult decision. However, when we look at the life expectancyin Vietnam, particularly life expectancy at 60, we can see that today a womanwho reaches 60 is expected on average to live until she is 81 years old.Retiring at 55, women would receive on average a pension for more than 26years. Imagine that someone enters the labour market at 25, they wouldcontribute a maximum of 30 years, probably less. A contribution of 30 or 35years for a pension payment of 26 years is just not possible. It is notdifficult to understand the challenge that this poses to a pension system.
And with time this situation will get more dramatic. Not only life expectancywill continue to increase, but the ratio of working adults to elderly peoplewill drop to 3 to 1.
We do not see how the system can survive if parameters like retirement age arenot adjusted.
At the same time, we understand the challenges to this, and recognise thatchange will need to be a gradual process. One solution is to increaseretirement age by three months every year. If the changes start to beimplemented in 2020, it would mean that by 2024 women will retire at 56 insteadof 55, and at 57 by 2028. This gradual approach will give time for people andthe economy to adjust.
Q: Are there any other methods to prevent the social insurance fund frombankruptcy without increasing the retirement age?
A: There are three key elements to balancing the financial sustainability ofsocial security schemes: reducing benefits; increasing retirement age andincreasing contribution rate. Each of them has different impacts in the fundfinancial situation; and also in individuals’ and businesses’ situations.Finding the right balance imperative, and implementing gradual reforms to givepeople and business time to adjust is essential in creating financial balance,and also guaranteeing the positive social impact of the reforms.
Q: What is the relation between the increase of retirement age andproductivity? How do they affect each other?
A: We don’t think there is any proof for the assumption that increasingretirement age will have negative impacts on the economy. We don’tthink older workers are necessarily less productive. You may have toshift them to different positions but let’s look at the issue this way: Howdo younger people get trained if not by those who have experienceand share it? You should shift the older workers to a place where they canshare their knowledge, and where their experience can be beneficial.
Given the case of such a gradual adjustment we do not expect a big impact onproductivity. The issue of productivity is an important one for the future ofthe country and for sure, other policies will be put in place. I wouldemphasise the relationship between these two elements.
With an ageing population Vietnam will face future labour shortages. Increasingretirement age can help to cope with this challenge.
Q: One of the weaknesses of Vietnam’s social insurance system is its lack ofcoverage. What is your recommendation to improve that?
A: You are right. More important than the discussion on retirement age is thenumber of elderly people that still don’t benefit from any pension.
One lesson we see from other countries is that it is very difficult for acountry to rely on people to make contributions voluntarily. Foremployers, it looks like a business expense. For workers, it looks likesomething that reduces their monthly pay. Many people do not see the need orurgency of a pension system until they are old.
Some of them can contribute, and they should be asked todo so. The health insurance system in this country shows it canbe done, if people see immediate pensions. This is why the short-termbenefits are so important, like maternity, sickness and possibly future familybenefits.
In terms of extension of coverage there are various mechanisms in place toachieve this. For instance, there should be some benefits for everybody in thecountry that are paid by the State. You have to have a basic level ofprotection for everyone so nobody falls into poverty, for instance by expandingthe social pensions to those who are already old and did not have the chance topay contributions to the system when they were young. This largelybenefits the women and men in informal sectors. So when you want to mitigatefrom State intervention to people actually putting up contributions,you could tell everyone that as a member of society, and also because directlyor indirectly everyone contributes to the development of the society, you havethe right to a minimum level of protection offered by the State, and on top ofthat, you may have higher benefits that come from your wages.-VNA
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