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Vietnam Must Act Aggressively to Reduce Overall Deficit In Pension System

An aging population will equally put strain on Vietnam’s health insurance fund, which has few assets to spare and has already been experiencing almost zero balances over the last years.

Vietnam Must Act Aggressively to Reduce Overall Deficit In Pension System Photo: Reuters
Nhat Trung14:53 28/08/2019
While pension reforms are difficult, they take decades to complete and should be implemented as soon as possible to ensure long-term sustainability. An aging population will equally put strain on Vietnam’s health insurance fund, which has few assets to spare and has already been experiencing almost zero balances over the last years.
Menu of parametric reforms. Several possible parametric reforms to delay and reduce the overall deficit in Vietnam’s pension system are examined. All policy changes are implemented as of 2021, with the following scenarios considered:
Inflation indexation: This scenario assumes a full shift from wage indexation to inflation indexation, with real wage growth assumed at [5.5] percent, and inflation at 3.5 percent per year.
Increase in retirement age: The scenario assumes an increase in the official retirement age of 0.4 years per year, until the retirement age of 62 for women, and 65 for men. An increase of retirement ages in an 0.4 increment until 62 years of age for both men and women is already being discussed by the authorities.
Reduction in benefits: The scenario assumes a 1 percent reduction per year compared to the baseline, until a total reduction of 1/3 compared to the baseline is reached (in 2050).
Increase in the contribution rate: The scenario assumes an increase of 1 percent of contributions compared to the baseline every two years until a 10 percent total increase is reached in 2035.
Increase in coverage: This scenario assumes that the pension coverage increases with nominal per capita GDP until it reaches 80 percent of the workforce (in 2035). Given a significant lag in covered pensioner numbers, their number increases by 1 percent of additional contributors per year compared to the baseline until 2030. After, each year an additional 2 percent are added, until covered pensioner numbers reach 80 percent of total pensioners (in 2055).