SEC calls for larger retirement nest eggs

The Securities and Exchange Commission (SEC) is urging Thai employees to build up larger retirement nest eggs after a study showed that average provident fund savings are insufficient to cover their expenses as pensioners.

Employees should save at least 15% of their monthly salaries or have a minimum of 2.1-3.3 million baht to sufficiently cover expenses after retirement, said secretarygeneral Rapee Sucharitakul during a seminar titled “SEC Retirement Savings Symposium 2017”.

But average savings in Thai provident funds only accounts for 5% of employees’ monthly earnings, he said, citing research conducted by Chulalongkorn University’s Faculty of Commerce and Accountancy.

Thailand has had provident funds for three decades, following the Provident Fund Act of 1987. Both employers and employees are required to put at least 2% of monthly salary into the funds, but not more than 15%.

But provident fund members make up only 3 million people, accounting for 21.5% of all employees in the formal sector over the past three decades, said Mr Rapee.

There are only 17,000 companies, or 2.8% of total firms registered at the Commerce Ministry, that have set up provident funds for their employees, he said.

For the past 20 years, state-owned enterprises, licensed companies and listed firms have been required to establish provident funds. But some companies established before the cabinet enacted that rule are not required to do so.

“This research suggests that half of total provident fund members will receive less than 1 million baht from their funds,” said Mr Rapee. “This amount is not enough to cover expenses when they enter retirement age.”

He said the problem of insufficient savings for retirement comes from minimal savings and lost investment opportunities.

Most provident fund savings are invested in fixed-income securities, where returns are lower than inflation.

“The national pension bill, which is pending approval by the National Legislative Assembly, will force people to have more money for retirement,” said Mr Rapee.

For employees who have no investment experience, the life-path investment plan, which builds an investment portfolio based on the member’s age, is suitable for these employees, he said.

For instance, this savings plan invests a large portion in equities for those just entering the workforce while reducing the equity investment portion to increase fixed-income investment when members become older.

The SEC will partner with the Association of Provident Funds and the Stock Exchange of Thailand to motivate and educate private companies on provident funds, said Mr Rapee.