CHANGES AFOOT
Amendment to allow more investor choice
The Finance Ministry is amending the law to allow the Government Pension Fund to set up an investment management company.
The Finance Ministry is amending the law to allow the Government Pension Fund (GPF) to set up an investment management company as part of efforts to create a new source of pension fund income and in turn yield higher returns for members.
“We think the GPF has a workforce that is capable of managing funds’ investment portfolios, so the concept can increase returns for members,” finance permanent secretary Somchai Sujjapongse said in a speech titled “Challenges of Thai Pension Systems: Issues of Coverage, Adequacy and Sustainability”.
He said Finance Minister Apisak Tantivorawong agrees with the idea and the Fiscal Policy Office is amending the law.
Moreover, the GPF will soon give its members more investment choices, Mr Somchai said.
For example, GPF members who are young can opt for riskier investments in the hope that over a long time period they will earn a larger return. Middle-aged members with a medium risk appetite can also adjust their investments, as can those near retirement age.
“We have a plan to single out members’ investment portfolios, basing them on individuals’ needs to offer them better returns,” he said. “Older members can invest in less risky assets if they plan on retiring soon. Some GPF members’ matching contributions and benefits total 70% of their current salary now.”
The ministry is seeking methods to cap the future fiscal burden of GPF contributions and pension payments while still offering a similar return to present levels. A source at the ministry recently said it is considering raising members’ contributions and cutting pension payment portions.
The GPF, the pension fund for state officials, has around 1 million members.
Apart from the GPF, the ministry is taking aim at strengthening the retirement safety net for Thais as the country is turning into an ageing society.
Mr Somchai said the ministry plans to amend the law governing the Social Security Fund (SSF) to increase the retirement age of the fund’s members to 60 from 55. The move will increase their savings period. Another option is shortening the fund’s old-age pension payments to its members, he said.
Widening the SSF’s investment options will also be included in the amendment, said Mr Somchai.
The SSF’s member contribution requirement is still low and this results in low old-age pension payments, a mere 20% of the average salary in the final five years in some cases, he said.
Both employers and employees are mandated by law to make contributions to the SSF at 5% of salary with a monthly cap of 750 baht, with the government contributing 2.75% of salary, with a maximum rate of just above 400 baht.
The SSF earmarks 60% of employers’ and employees’ contributions to pensions, while 20% of the government’s contribution is allocated for pensions.
SSF members receive coverage in case of injury, disability, death, illness, child birth, unemployment and oldage pension.
Internationally accepted standards recommend monthly income of retirees to be 50% of salary to allow people to live comfortably after their employment.
The government believes if it can reinforce the retirement safety net comprising the GPF, the mandatory provident fund that is expected to be implemented soon, the National Savings Fund (NSF), voluntary provident funds and the SSF, Thais’ retirement savings could soon reach 50% of income, Mr Somchai said.
Without reforming the retirement safety net, the government burden in taking care of the ageing society could hit 600-700 billion baht and lead to a fiscal crisis in the future, he said.
This threat makes it worthwhile for the government to contribute tens of billions of baht per year to the NSF and SSF, said Mr Somchai.