The Vietnam Social Insurance Fund for many years often gives bad information about the possibility of debt default, fund failure, liquidity loss, etc., when the number of employees who decide to withdraw lump sum social insurance from the fund increases sharply. This information worsened the psychology of employees depositing money into the fund, raising the question of whether the Vietnamese social security fund under the control of the State is really capable of defaulting or not.
In fact, the Vietnam Social Insurance Fund operates in the form of an investment fund when employees and employers who are investors participate in the fund in the form of compulsory or voluntary to receive a large profit in retirement.
With about 40 years of participating in the fund, when they retire, employees will be able to receive a pension ranging from 33.75% or 45% to 75% according to the new Draft Law on Vietnam Social Insurance issued in 2023.
During that period, the influence and impact from the employee on the cash inventory in the fund or the stable development of the Social Insurance Fund comes from the employee withdrawing the lump sum social insurance, completely stop participating in the social security fund or having a large number of employees enjoy social insurance benefits such as the time when massive amount of employees enjoy sickness benefits during the Covid-19 pandemic boom in 2020, or if there is a strong wave of layoffs resulting in large numbers of employees claiming unemployment benefits.
In addition to the impacts from the employees, the stable development of the Fund may also be affected from the employer's side when businesses evade or delay paying social insurance contributions on both sides, of the employer and of the employee. By the end of January 2023, according to the Vietnam Social Insurance, the total amount of late payment of social insurance by enterprises was 25,940 billion VND, an increase of nearly 3,900 billion VND compared to the same period last year.
In addition, in the above figure, there are about 3,500 billion VND of evading social insurance contributions which were determined to be difficult or impossible to recover as of September 2022, affecting the interests of more than 206,000 Vietnamese employees.
Will the Vietnam Social Security Fund be insolvent?
Without taking into account the actual impacts from both the employee and the employer to the fund, the possibility that the Vietnam Social Insurance Fund will default due to illiquidity can only come from two other main reasons, which is the aging of the population leading to a sharp increase in social insurance expenditures or inefficient investment of the insurance fund.
The aging of the population is natural when science and technology is developing more and more. If current policies such as increasing retirement age are not applied, the number of people who retire and receive pensions each month will also increase sharply, leading to the loss of money in the fund faster than the amount of money contributed due to the number of people of working age is lower or inadequate that it is not enough to support the number of retired employees receiving pensions.
Secondly, the Vietnam Social Security Fund is an insurance fund like other insurance and investment funds. Thereby, the fund will also use the surplus money to reinvest in other domestic or international financial institutions and financial funds. However, any investment is risky, so the investment of an insurance fund is no exception. There is a risk that the employees will be the heavy losers when the social security fund invests inefficiently and loses money.
In that situation, because the responsibility belongs to the social security fund, the management agencies of the Government and the State will have to stand out to cover the investment of the employees. However, is this actually done or if it is, in what method, e.g. probably the insurance amount is only similar to bank deposits (Max. 125 million), ... will depend on the policy of the State when the Vietnam Social Security Fund really defaults.
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