Viet Nam’s social insurance reforms to be gradual, evidence-based

The expansion of health insurance in Viet Nam shows that extending social insurance coverage is possible.

Press release | 29 November 2017
HANOI (ILO News) – As reforms are a normal part of the life of all social security systems in the world, Viet Nam will need to start a parametric reform on a gradual and evidence-based basis.

Participants at a conference on “Reforming social insurance policies – International experiences and recommendations for Viet Nam” organized in Hanoi on 29 November by the Ministry of Labour, Invalids and Social Affairs (MoLISA) and the International Labour Organization (ILO), agreed that the social insurance reform should be built on the results already achieved.

Addressing the event, Deputy Prime Minister Vuong Dinh Hue said: “Social insurance is a key pillar of the social security system. It makes a great contribution to realizing social advancement and justice in view that access to social insurance is an universal social protection right, and is linked to the goal of universal coverage with a proper roadmap.”

As a country with a fast aging population and the predominance of informal economy, Viet Nam is facing several challenges in terms of social insurance system.

“In addition to encouraging achievements, Viet Nam’s social insurance policies have shown their limitations,” said MoLISA Minister Dao Ngoc Dung.

The scheme’s coverage remains limited due to low compliance in the formal sector and low coverage in the informal sector. Meanwhile, 6-7 million old-aged persons currently do not receive a pension.

“The challenge is how to reach “the missing middle”, who falls between social insurance and social assistance coverage,” said ILO Viet Nam Director Chang-Hee Lee. “Despite good progress in the last decade, only 14.6 million Vietnamese workers are registered to social insurance, accounting merely one fourth of the labour force.”

He added that extending coverage among the small and medium enterprises, workers with short-term contracts and those without an employer-employee relationship requires additional efforts and innovations. It is important to extend social protection to workers in the informal economy as a way of formalizing and improving their working conditions.

The ILO recommended Viet Nam extend social protection to those in the informal economy through a mix of contributory and non-contributory schemes in order to achieve the universal coverage.

“The expansion of health insurance in Viet Nam shows that extending social insurance coverage is possible,” said the head of ILO Viet Nam.

Viet Nam’s pension fund is also facing financial sustainability challenge in the near future. High replacement rates (75 per cent maximally) and low retirement ages, a significant amount of members receiving lump-sum, high number of early retirement cases due to health issues and other factors, including sectoral preferentials, are among the causes.

“Parametric reforms towards a contributing-receiving balance in pension policies were addressed during the development of social insurance laws, most recently the revised Social Insurance Law in 2014,” said the Minister. “However, with the aging population and the restructure of employment due to economic integration, climate change and industrial revolution 4.0, the pension fund is still at risk of imbalance in the long run.”

The ILO suggested Viet Nam undergo further parametric reforms, which could include increasing retirement age and reducing replacement rate.

The head of ILO Viet Nam said the country should develop a multi-tier system for its social insurance scheme which is inspired by the positive experience of the health insurance.

“Fiscal space for extending social protection exists even in non-rich countries in the world,” he added. “The Government of Viet Nam could explore all possible financing options to promote the Sustainable Development Goals and national development through decent jobs and social protection.”

In Viet Nam, social insurance is a major pillar of the social protection system, and access to social protection is a citizen right acknowledged by the country’s Constitution.