PVDs fall short of retirement needs
Some 60% of provident fund (PVD) members are estimated to receive less than 1 million baht from the voluntary fund for employees upon retirement, well below the 3-5 million baht projected as the minimum necessary to have a decent standard of living after retirement, said the Securities and Exchange Commission (SEC).
The remaining 40% are expected to receive 1 million baht or above from PVDs, but many will still be below the threshold of 3-5 million baht.
To increase retirement savings from PVDs, there are several options, including raising the return on investment by allocating more to risk assets and diversifying to other asset classes, as well as higher contributions, said Sarica Apiwatthanakul, assistant secretarygeneral of the SEC.
She said higher contribution rates and diversifying to other assets appear to be more difficult choices than increasing the investment portion to higher-yielding assets.
Thailand will become an aged society in the next decade, and PVDs play a vital role in building up retirement savings, but only 20,000 out of 480,000 employers across the country offer the benefit to employees, Ms Sarica said.
Of the 20,000 companies, the average contribution to PVDs by both employers and employees is 5% each, though the current law governing them allows both to contribute up to 15%.
“We’ve found that few employers or employees recognise that the ceiling contribution is 15%, so the SEC will invite PVD directors from all companies to train them on long-term investment and updates to the PVD laws,” Ms Sarica said. “Our training programme started last December, and 180 firms have already taken the course.”
The regulator aims to increase participation in the training programme and adjust investment information, especially for investment approaches so that PVD members can gain higher returns, she said.
Employers and employees who participate in PVDs are required to contribute 2-15% of each worker’s monthly salary to the fund.
The SEC is working with asset investment management companies to promote a long-term investment theme called the life-path investment programme.
Under the scheme, fund managers who use the strategy will increase the proportion of fixed-income investment over time. The investments will become more conservative as investors approach retirement.
For example, an employee aged 25 can invest 80% of the portfolio in high-risk assets such as stocks to seek higher returns, and the ratio put into high-risk assets will gradually decline as the employee ages.
Most PVDs invest in fixed income, taking up about 80%, with stocks making up the remainder. This means members receive very low returns. Employees can select an approach that matches their needs.
“The SEC will support PVDs investing in life-path programmes and employee choices for investment, which are considered good options for long-term investment, helping PVD members get higher returns in the long term,” Ms Sarica said.
Vasin Vanichvoranun, Kasikorn Asset Management’s executive chairman, said the return on PVDs is quite low because most PVD members are risk-averse.
Mr Vasin said PVDs still have plenty of room to grow, as 10 million Thai employees are not PVD members.
Mr Vasin estimates that 30 billion baht will flow into long-term equity funds in the fourth quarter before taxsaving privileges expire at year-end.