SOCIAL INSURANCE SYSTEM SOCIAL INSURANCE SYSTEM IN VIETNAMIN VIETNAM

INPRSINPRS//OECDOECD Conference on Private PensionsConference on Private Pensions2828--30 May 200330 May 2003Hyderabad, IndiaHyderabad, India

OutlineOutline

!! Social Insurance in Vietnam from 1961Social Insurance in Vietnam from 1961--19951995

!! Social Insurance in Vietnam from 1995 Social Insurance in Vietnam from 1995 --presentpresent

!! Pension Mechanism Pension Mechanism !! Tax TreatmentTax Treatment

Social Insurance in Vietnam from Social Insurance in Vietnam from 19611961--19951995

!! StructureStructure!! MembershipMembership!! BenefitsBenefits!! Contribution MechanismContribution Mechanism

Social Insurance SystemSocial Insurance System

MOLISA

Long-term Benefits

•Pension

•Early Retirement

•Survivorship

VGCL

Short-term Benefits

•Sickness

•Maternity

•Occupational accident and diseases

MOLISA: Ministry of Labour, Invalids, and Social AffairsVGCL: Vietnam General Confederation of Labour

MembershipMembership

!! Officials of government administrative Officials of government administrative bodiesbodies

!! Employees of state owned enterprisesEmployees of state owned enterprises!! Members of Party’s organisationsMembers of Party’s organisations

BenefitsBenefits

!! PensionPension!! Early retirementEarly retirement!! SurvivorshipSurvivorship!! SicknessSickness!! MaternityMaternity!! Occupational accident and diseasesOccupational accident and diseases

Contribution MechanismContribution Mechanism

!! Employers and organisationsEmployers and organisations!! State budgetState budget

–– During the period from 1990 During the period from 1990 -- 1995, the 1995, the State budget covered over 90% total State budget covered over 90% total expenditures of the social insurance expenditures of the social insurance activitiesactivities

Social Insurance in Vietnam Social Insurance in Vietnam from 1995 from 1995 -- presentpresent

!! Establishment ofEstablishment of VSIVSI!! Organisation of Organisation of VSIVSI!! MembershipMembership!! Contribution Mechanism and BenefitsContribution Mechanism and Benefits!! Operation of Operation of VSIVSI

Establishment of Establishment of VSIVSI

MOLISA

VIETNAM SOCIAL INSURANCE

(VSI)

VGCL

Feb. 1995

Vietnam Health Vietnam Health InsuranceInsurance

Jan.

2002

Organisation ofOrganisation of VSIVSI

Head OfficeHead Office

Provincial Office Provincial OfficeProvincial Office

District Office District OfficeDistrict Office

MembershipMembership

!! Employees of state owned enterprisesEmployees of state owned enterprises!! Employees of nonEmployees of non-- state owned enterprises state owned enterprises

with 10 employees or morewith 10 employees or more!! Employees of foreign invested enterprises, Employees of foreign invested enterprises,

foreign organisationsforeign organisations!! Employees of governmental administrative Employees of governmental administrative

bodies, government’s activitiesbodies, government’s activities!! Members of Party’s organisationsMembers of Party’s organisations

Contribution MechanismContribution Mechanismand Benefitsand Benefits

Contribution % WagesSystem Program Employer Employee Benefits

Pension and -Pensiondeath benefits 10% 5% Survivorship

Socialinsurance

Sickness, Sicknessmaternity, 5% - Maternityand workers’ Occupationalcompensation accident and

diseases

Operation of Operation of VSIVSI

!! Sources of IncomeSources of Income!! ExpendituresExpenditures!! Investment ActivitiesInvestment Activities!! Allocation of Investment IncomeAllocation of Investment Income

Sources of IncomeSources of Income

!! Contributions of employers: 15% basic Contributions of employers: 15% basic salary of employeessalary of employees

!! Contributions of employees: 5% basic Contributions of employees: 5% basic salary of employeessalary of employees

!! Contributions and Supports from the Contributions and Supports from the State BudgetState Budget

!! Investment IncomeInvestment Income!! Other assistance and supportsOther assistance and supports

ExpendituresExpenditures

!! Pension benefitsPension benefits!! Survisorship Survisorship benefitsbenefits!! Sickness benefitsSickness benefits!! Maternity benefitsMaternity benefits!! Occupational accident and diseases benefitsOccupational accident and diseases benefits!! Health insurance contributionHealth insurance contribution!! Other (delivery, administrative expenses Other (delivery, administrative expenses

and expenses on and expenses on buldingsbuldings...)...)

Investment ActivitiesInvestment Activities

!! Interest bearing bonds or Interest bearing bonds or secutities secutities issued by issued by ther ther government or government or commercial banks, state treasury bondscommercial banks, state treasury bonds

!! Direct loans to the national budget, Direct loans to the national budget, national investment fund and state national investment fund and state commercial bankscommercial banks

!! Public development projects and Public development projects and enterprises subject to approval of the enterprises subject to approval of the Prime MinisterPrime Minister

Allocation of Investment IncomeAllocation of Investment Income

!! 50% to pay social insurance benefits50% to pay social insurance benefits!! An amount (equal to 4% revenue from An amount (equal to 4% revenue from

social insurance contributions) to cover social insurance contributions) to cover current administration expenses current administration expenses

!! An amount (An amount (avarageavarage salary for 3 months) salary for 3 months) to set up bonus and welfare fundsto set up bonus and welfare funds

!! Remaining amount allocated to capital Remaining amount allocated to capital expendituresexpenditures

Pension MechanismPension Mechanism

!! General FeaturesGeneral Features!! ConditionsConditions!! Benefit Benefit FomularFomular

General FeaturesGeneral Features

!! A legal and independent accounting A legal and independent accounting entity under the direct guidance of the entity under the direct guidance of the Prime Minister but subject to the Prime Minister but subject to the management of management of MOLISAMOLISA

!! Mandatory participation to all employeesMandatory participation to all employees!! Defined benefits indexed to Defined benefits indexed to avarage avarage

monthly salary and years of contributionsmonthly salary and years of contributions!! PayPay--AsAs--YouYou--Go basisGo basis

ConditionsConditions

!! 20 years of contributions, age at 60 for 20 years of contributions, age at 60 for men and 55 for women (normal men and 55 for women (normal retirement age)retirement age)

!! 20 years of contributions, age at 55 for 20 years of contributions, age at 55 for men and 50 for women (5 years earlier men and 50 for women (5 years earlier for employees):for employees):–– Working in hazardous occupationsWorking in hazardous occupations–– Living in designated areas and war veteransLiving in designated areas and war veterans

Pension benefits are available:

BenefitBenefit FomularFomular

Monthly pension benefit = AMS x (0,03 x 15 + 0,02 x (YoC - 15))

AMS: Average Monthly Salary

YoC: Years of Contribution

Service factors: 3% for the first 15 years and 2% thereafter

AMS = Weighted Average Monthly Salary for last 5 years if the employee’s contribution calculated by the state salary system

= Weighted Average Monthly Salary for the period of service if the employee’s contributions both calculated by the state salary system and non-state salary system

Minimum Basis Salary ≤≤≤≤ Monthly pension benefit ≤≤≤≤ 75% AMS

Tax TreatmentTax Treatment

!! Employer contributions are Employer contributions are CIT CIT deductible expensesdeductible expenses

!! Employee contributions are PIT Employee contributions are PIT deductible expensesdeductible expenses

!! Pension benefits are PIT deductible Pension benefits are PIT deductible expensesexpenses