Regarding this issue, Lao Dong Newspaper reporter had an interview with Prof. Dr. Giang Thanh Long - Senior Lecturer, National Economics University, expert on public policy and social security.
Low pensions compared to current living standards
According to you, in the current context, what principles should policies prioritize: Absolute equality or fairness in the direction of supporting vulnerable people?
- The very important function of a social security system is to ensure equality and fairness (in participation, level of enjoyment of benefits...) of everyone as well as best support for vulnerable groups (such as the poor, people with disabilities...), not leaving them behind based on the principle of sharing. Therefore, if implementing a simultaneous increase of 8% for all benefit groups, it will ensure fairness according to the principle of contribution-benefit and will be adjusted together based on the level of enjoyment.
However, this method will increase the income gap between benefit groups, especially the greater the initial gap, the higher the difference will continue to increase after adjustment. For example, the current pension level of person A is 3 million VND, of person B is 10 million VND, then the difference before adjustment of 8% is 7 million VND; but after adjustment, the new difference will be 7.56 million VND (= 10.8 million VND - 3.24 million VND).
The support method is to increase a certain percentage along with a fixed amount (according to the proposal of 4.5% and 200,000 VND), which will have a higher support value for those with lower pension levels; at the same time, it is also fair to all beneficiaries because nominal income is adjusted according to the price to ensure living standards.
Also according to the example of two people A and B above, the adjustment level according to this proposal for person A will be an increase of 4.5% + 6.6% (converted to a ratio of 200,000 VND compared to 3 million VND) = 11.1%, while for person B it will be an increase of 4.5% + 2% (converted to a ratio of 200,000 VND compared to 10 million VND) = 6.5% and the difference in benefit level after adjustment is 7.31 million VND (=10.65 million VND - 3.34 million VND).
The 8% simultaneous increase plan may create a feeling of simplicity and ease of implementation, but will it lead to a situation of "uniformity", when high-wage earners still enjoy a larger increase than low-wage earners?
- Currently, an important goal is to narrow the pension gap between benefit groups. The second way may help narrow a part of the gap, especially the more disadvantaged group (with lower pension levels) is adjusted higher in terms of ratio as well as absolute benefit level (such as person A is the benefit level after adjustment according to option 1 (3.24 million VND) lower than according to option 2 (3.34 million VND). At the same time, with the adjustment at a rate of 4.5%, people with high salaries are still compensated for the price because this adjustment level is quite close to the current consumer price index.
In case the benefit level gap is not too large, a simultaneous adjustment (according to option 1) can be implemented, while the benefit level is dispersed and large differences, adjustment according to option 2 is more reasonable.
Personally, I believe that with our digitization of data on beneficiaries, there is no difficulty in calculating options. Therefore, "leveling" for ease of implementation is probably no longer a term in policy making and implementation today.
Although both options raise the group of retirees before 1995 to 3.8 million VND/month, many opinions believe that this level is still low compared to the current living standard. According to you, is such an adjustment enough to be fairer or is it just a temporary solution?
- It should be noted that the group retiring before 1995 is the group paid for by the state budget. This benefit group has a different benefit level calculation method than the group after 1995. The adjustment depends very much on budget capacity but must also be suitable for living expenses.
For me personally, 3.8 million VND/month is low compared to the current living standard, even for rural areas, especially when the elderly have a very heavy burden of spending on health care, even if they have health insurance. Therefore, I propose that even in this benefit group, it is necessary to group according to the benefit level and calculate according to the method of option 2 to be able to best support people with too low incomes.
Is there a risk of rapid increase causing fund shortage?
If choosing the option of increasing by 8% simultaneously, the pressure on the Social Insurance Fund will be greater. According to Professor, is there a risk that the policy is "pleasing" the current situation but creates risks of imbalance in the future?
- Reality shows that our current contribution - benefit formula has naturally created an imbalance in the fund in the future. The contribution rate for the pension and death fund (long-term fund) is 22% of salary/income as a basis for contribution (of which 14% is paid by employers and 8% is paid by employees), but the benefit rate can reach a maximum of 75%.
Currently, the surplus of the fund is due to the number of contributors being much higher than the number of beneficiaries, but in the long term, when the number of beneficiaries increases and the benefit period is longer due to improved lifespan (even the benefit period may be longer than the contribution period), it will really be a challenge for the fund's balance.
Not to mention, a reality is that the salary/income level as the basis for social insurance contributions is not the actual salary/income level, so many workers have low contributions and therefore the benefit level will be low. However, when retired, the total contribution level is considered fixed, while the benefit level is adjusted according to different policies (and is often adjusted upwards), so this is also a factor causing imbalance between contributions and benefits.
If we have sufficient data to classify beneficiaries according to different levels and use a uniform reference system (such as the consumer price index for inflation handling and a minimum benefit level calculated at a certain rate of GDP per capita), then we can completely have scenarios for the budget, new benefit levels... for groups adjusted according to option 1 and the remaining groups according to option 2.
This will help the Government and the Ministry of Finance/Vietnam Social Insurance Agency choose the most suitable option with the budget and fund capacity, as well as achieve the goal of fairness (all groups are at least compensated for inflation) and sharing (the more disadvantaged are supported more).
Thank you very much, Professor!
