Proposals for pension reform ignite debate over striking right balance
The debate over pension reforms has drawn a lot of attention in Việt Nam, with policymakers striving to strike a delicate balance between retirees’ benefits and fiscal constraints.
The Ministry of Labour, Invalids and Social Affairs (MOLISA) two weeks ago proposed an additional increase of 15 per cent in pensions, 29.2 per cent in preferential allowance and 38.9 per cent in welfare benefits to improve the living standards of beneficiaries.
The Ministry of Finance (MOF) was not all for the proposal, cautioning that the increases could overstretch the State budget by VNĐ7.4 trillion (US$300 million) in the latter half of 2024.
Phạm Minh Huân, former deputy minister of labour, invalids and social affairs, suggests revising the proposal to ensure it would not cause a breach of fiscal limits.
"If we cannot achieve an increase of 15 per cent in pensions, an increase of between 12 to 13 per cent could be an alternative," said Huân.
He also says the increase of 8 per cent suggested by the Vietnam Social Security is too low for retirees, given the imminent significant increases in salaries for civil servants and public officials.
He also emphasises the need for targeted policies to boost the pensions of pre-1995 retirees, who had a low salary base and did not enjoy
Rather than considering only the years immediately preceding retirement for people in the public sector, their entire contribution period should be factored into pension calculations to narrow the sector gap.
regular pay rises when they were on the job.
He adds that workers paying low premiums into their retirement plans because of low wages should also be eligible for pension rises when they retire.
"If an average increase of 8 per cent is approved, these two beneficiary groups should enjoy a higher increase of 10 per cent," said Huân.
He also calls for a new approach to pension planning to address the disparities between the public and private sectors.
Rather than considering only the years immediately preceding retirement for people in the public sector, their entire contribution period should be factored into pension calculations to narrow the sector gap.
Meanwhile, former Director of the Institute of Labour Science and Social Affairs Nguyễn Thị Lan Hương subscribes to MOLISA'S proposal.
She says an increase of at least 15 per cent is essential to ensure retirees' well-being, especially considering the projected 30 per cent increase in salaries for civil servants and public officials.
Regarding the concern that prices would rise even before the pension hikes come into force, Hương describes it as plausible and "hard to avoid".
However, she believes that prices would stop rising and gradually level off when the pension reform begins
to take root. She also suggests communication measures to mitigate the impact of inflation expectations.
"Well-designed fiscal plans and communication measures will ensure the pension reform produces its desired effects," said Hương.
After considering the feedback from the Central Steering Committee for Wage Reform, MOLISA is drawing up a new proposal that comprises three beneficiary groups.
The first group consists of ordinary retirees. The pension increases for this group will be calculated to ensure a fair distribution among the public and private sectors.
The second group comprises retirees who retired before July 1, 2024. Additional compensation measures will be implemented to reduce the pension gap between this group and those who will retire after the date.
The third group is composed of retirees who retired before 1995. MOLISA will issue preferential policies to increase the pensions of this group to decent levels.