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Mainstream, VOL 61 No 6, February 4, 2023

Vietnam’s social insurance dilemma | Tu Phuong Nguyen

Saturday 4 February 2023


by Tu Phuong Nguyen *

February 2, 2023

At the end of 2022, there were reports of long queues [1] of employees in Ho Chi Minh City who had been waiting since dawn at several local offices to claim lump sum payments from their social insurance premiums. Many Vietnamese workers view their social insurance premiums as a kind of savings [2] mechanism, and are inclined to seek early access to social insurance funds when their income is lost or reduced or when extra household spending needs arise.

A survey by Vietnam’s Institute of Workers and Trade Unions has found that 30 per cent of workers have no savings [3] and often need to borrow money to pay for household expenses.

Under Vietnam’s social insurance law, formally employed workers are entitled to access the compulsory social insurance scheme. Both employers and employees must contribute to employees’ insurance premiums, which pay for pensions and other benefits such as maternity leave. Employees who withdraw their social insurance premiums early might go without the pension or the accompanying free public health insurance in their retirement.

The number of lodgements for the early lump sum payments is rising. In 2021, there were more than 960,000 lodgements [4], an increase of nearly 12 per cent from 2020. Many claimants of the lump sum are in the age ranges of 20 to 39 [5]. According to the law, one of the conditions by which employees can withdraw their social insurance premiums is when they quit their job and stop contributing to the social insurance fund for one year. This condition has applied to most claimants.

Public discussions about social insurance benefits have been rising, especially since the state failed to enforce a 2014 legal amendment [6] that would no longer allow employees to withdraw their social insurance premiums in full one year after leaving or losing a job, instead requiring that they wait until the retirement age.

The government has stressed the importance of monthly pensions as a crucial source of income for employees when they retire. Employees who choose to withdraw their social insurance premiums, instead of accumulating their contributions to be eligible for the pension, are portrayed [7] by the state to be ‘only thinking about their short-term needs’.

The growing trend of early withdrawal is concerning. First, it challenges the key objective of the social insurance system in Vietnam — to increase the coverage of social insurance benefits and promote social welfare for the working population. As the pension is a key pillar of social insurance, more people choosing to opt out of the system will put a greater burden on the state to provide care and support for these people when they have no source of income in their old age.

Second, the issue of early withdrawal highlights the precarious working and living conditions of much of the industrial workforce in Vietnam. As the country welcomes foreign investment [8] in its modernisation process, many people move from their less developed regions to work in factories in industrialising hubs like Ho Chi Minh City. These migrant workers fill manual assembly jobs in garment, footwear and other processing industries — mostly producing for exports. These jobs require limited skills and qualifications and often reward workers barely enough to support themselves and their families.

Numerous reports have raised concern about workers’ economic struggles [9]. The current minimum wage for high-growth regions like Ho Chi Minh City is approximately US$200 a month, an increase of 6 per cent [10] from the previous minimum wage rise in 2020. But a former leader of the Vietnam General Confederation of Labour — the only trade union in Vietnam — suggested that the minimum wage still falls short [11] of workers’ minimum living needs by 15 per cent.

Besides low pay and long working hours, jobs in light manufacturing industries are exposed to disruptions in the global market, forcing supplier factories to cut costs and reduce their labour force in response to short-term trends. Massive job losses [12] during the COVID-19 pandemic and those resulting from weak consumer demand [13] in export markets are striking examples. Therefore, despite being in formal employment, many factory workers’ jobs and lives remain precarious.

Many people who joined the queues at local offices to withdraw their social insurance premiums lost their jobs during the pandemic. Other factors concerning workers’ evaluation of their job prospects, future plans, and trust in the social insurance system (or lack thereof) could also be at play in their decision-making.

State authorities have put forth proposals to deter workers from early withdrawal so they can be eligible for the pension. Some of these proposals reduce the monetary amount [14] that an employee can claim for early withdrawal and lower the minimum years [15] of social insurance contributions as the eligibility requirement for the pension (the current requirement is 20 years). These proposals are reactive at best and do not consider the precarious conditions of the industrial workforce — the largest beneficiaries of the social insurance system.

Future reforms of the Vietnamese pension system must go hand in hand with improved social policies that support industrial workers and labour relations reforms that would give those workers a better say in the collective bargaining process.

* (Author: Tu Phuong Nguyen is a Visiting Research Fellow at The University of Adelaide’s School of Social Sciences)

[The above article from East Asia Forum is reproduced here for educational and non-commercial use]

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