An overloaded pension fund must be reformed

Nee Suesakul, 59, right, sells ice cream to a customer while looking after her four-year-old nephew on a tricycle. She faces an uncertain future as she cannot afford to pay her social security.

The Social Security Fund (SSF) pension scheme, which was designed to provide a source of income for private sector pensioners, may not last unless changes are made to bolster its finances, experts warn .

Concerns over the viability of the SSF are being echoed by academics and workers’ rights advocates after Labor Minister Suchart Chomklin last month put the brakes on a proposal to start paying retirement benefits at age 60 to the place of 55 years.

The proposal, presented by the Social Security Office (SSO), is part of draft amendments to the Social Security Act to increase benefits for subscribers whose number now exceeds 10 million. It needs a nod from cabinet before it goes to the House of Representatives for consideration.

Approved by the SSO Board in 2017, the proposal to raise the retirement age from 55 to 60 was debated and supported by employers and employees, who would see it benefits in terms of more retirement savings and greater fund sustainability.

But in the wake of the Covid-19 pandemic, the change has drawn strong objection from labor stakeholders fearing it will affect workers’ pension plans.

Factory workers in several industries have been known to retire at 55, and companies offer generous early retirement schemes to older workers to motivate them to retire early so they can be replaced by younger ones. . They are among the opponents of a later payment age.

The fund slips into the red

The issue of fund sustainability is not new; it was raised even before 2014 — first-year subscribers of funds who had reached the age of 55 began to receive their pension benefits after 15 years of contribution.

Estimates from actuaries and the International Labor Organization (ILO) show that the fund’s inflows would match its outflows in 2039. With pension benefits being paid quickly in subsequent years, the fund would be in deficit by 2044.

If this scenario materializes, it will affect the confidence of policyholders who are contributing now but are not yet qualified to claim their retirement benefits. The SSF may not be able to pay all the benefits to retirees who draw on the fund in the years to come.

A number of proposals have been floated to strengthen the fund’s finances and shore up subscribers’ retirement savings so that they have a decent income after retirement.

These include raising the retirement age to 60 to push back pension payments and increasing subscribers’ contribution to the fund by adjusting the maximum salary base from 15,000 baht to 20,000 baht, or increasing the contribution rate.

The maximum salary base of 15,000 baht has been in place since the introduction of the SSF in 1989, while monthly contributions to the employees’ fund were capped at 5%, or 750 baht per month, before Covid-19. Of the contribution, 3% goes to the pension plan.

After lengthy discussions, it is agreed by all stakeholders that any change will be gradual to minimize impacts. The SSO has been pushing for changes to the pension scheme over the past few years, but the proposals have been shelved by politicians as the issue is sensitive and may affect their popularity.

There appears to have been no attempt to raise awareness of retirement savings among fund subscribers, while past scandals involving the SSO may have discouraged workers from investing in the fund.

Reforms needed

Somchai Jitsuchon, director of research for inclusive development at the Thai Development Research Institute (TDRI), said the restructuring of the pension scheme was an urgent matter and should have been done five or so years ago. ten years.

He said there are several reform proposals to make the fund financially secure, and they can be used in combination depending on the economic situation. The principle is to increase income and slow down exits.

Raising the retirement age is an option adopted by several countries, which gradually raise the age so as not to affect those who are close to retirement. The age should increase, for example, by six months or a year, gradually over the years until it reaches 60.

He suggested the measure should apply to current subscribers as it will increase the size of the fund. It won’t make any difference if it applies to new subscribers, he added.

Increasing subscriber dues by increasing the monthly basis from 15,000 baht to 20,000 baht or reflecting inflation will also increase the fund. The base salary has never been revised despite minimum wage adjustments, he said.

However, he said increasing the contribution rate is the most viable proposal for increasing fund subscribers’ retirement savings. Few people can make do with monthly pension payments of just 3,000 to 4,000, he said.

Even if the economic situation is not favorable, the government must act to avoid a crisis in the next two decades, he said.

Mr. Somchai called on policymakers to have the courage to act because the changes sought will benefit the country and future generations.

Unless the pension system is reformed to increase savings, a proposal to pay retirees a retirement lump sum and a reduced monthly pension should be reviewed.

A source close to the SSO board said the government needed to convince workers of the benefits of raising the retirement age rather than stalling the proposal, which will apply to new subscribers.

Receiving the old-age pension later will allow recipients to also receive a larger monthly payment, and the retirement age would not be raised to 60 all at once but gradually increased over the years. The source also warned that the fund could run out well before 2044 because when the valuation was made in the past, the Covid-19 pandemic was not taken into account.

After the Covid-19 pandemic brought economic activity to a halt, the government decided to cut contributions to the fund to ease hardship for subscribers. The contribution cuts are estimated to have cost the fund about 20 billion baht, affecting its ability to pay pension benefits.

Single sign-on eases worries

SSO General Secretary Boonsong Thapchaiyuth allayed concerns about the sustainability of the fund, saying the office is committed to improving the fund’s finances and increasing benefits for subscribers.

He said the SSF made a profit of 56 billion baht last year and its investment plans should generate returns to pay for all benefits, including the retirement of SSF subscribers.

“The SSF has more than 2.3 trillion baht at its disposal and the money is spent according to need,” he said, noting that part of the fund is disbursed to help workers affected by the coronavirus pandemic. Covid-19.

He said there are several ways to strengthen the finances of the fund and make it secure, and one is to collect more monthly contributions by increasing the maximum salary base. However, he noted that the proposed increase in monthly dues will likely be based on graduated rates and on a voluntary basis.

Mr. Boonsong also discussed the new benefits to be added in the proposed amendment to the Social Security Act. According to the draft, retirees are allowed to choose between a one-time retirement payment and monthly retirement benefits.

In addition, those not yet qualified to claim pension benefits will be allowed to apply for a partial refund and collect the remaining amount when they turn 55. In addition, part of their contributions to the old-age pension fund can be used as loan collateral. , he added.

Asked about reports that several policyholders are choosing not to collect pension benefits in exchange for medical coverage in the wake of the Covid-19 pandemic, he said the issue was also addressed in the bill.

Subscribers who receive pensions cannot claim medical insurance benefits. To maintain these benefits after retirement, they choose to continue contributing to the fund. The SSO is also considering a plan to establish a hospital for fund subscribers by upgrading rehabilitation centers to provide general medical services.

Beneficiary contributions are still considered “low”

Recipients of retirement benefits must be at least 55 years old and no longer insured under the Social Security Act.

Those who have contributed to the fund for 15 years will receive a monthly payment equal to 20% of their average salary for the last 60 months before retirement.

For those who have contributed to the fund for more than 15 years, they will receive an additional 1.5% for each additional year.

Currently, employees pay 3% of their monthly salary, capped at 15,000 baht, to the scheme, and the amount is matched by employers.

The combined contribution of 6% to the scheme is considered low compared to the recommended 13%. It is recommended that retirees receive at least half of their base salary.

Beneficiary contributions are still considered “low”

Recipients of retirement benefits must be at least 55 years old and no longer insured under the Social Security Act.

Those who have contributed to the fund for 15 years will receive a monthly payment equal to 20% of their average salary for the last 60 months before retirement.

For those who have contributed to the fund for more than 15 years, they will receive an additional 1.5% for each additional year.

Currently, employees pay 3% of their monthly salary, capped at 15,000 baht, to the scheme, and the amount is matched by employers.

The combined contribution of 6% to the scheme is considered low compared to the recommended 13%. It is recommended that retirees receive at least half of their base salary.

Calculation of pension benefits

Number of years of contribution/pension rate/monthly payment (baht):

  • 15 years/20%/3,000
  • 20 years/27.5%/4,125
  • 25 years/35.5%/5,250
  • 30 years / 42.5% / 6,375
  • 35 years/50%/7,500

Dolores W. Simon