Living as retirees in the next 20-30 years when Thailand will have become an ageing society will not be easy without sufficient welfare support. The pension system needs urgent reform.
The current pension system has been seen as a tiffin box with three tiers of unconnected shapes and sizes.
What we prefer is a pension system which we can all participate in and where we benefit equally with our savings. It should also be consistent with the economy and financial system.
We need a system we can trust – the system that is well-managed, contribution promoting, meeting each individual’s financial target, accessible when needed and remaining simple and clear for future planning.
Its expenditure should be traceable and controlled by the government sector to prevent any losses.
Equal treatment, risk management and proper savings choices should all be provided while risks from high-priced management should be prevented.
In 2011, the National Savings Fund (NSF) was pushed forward to cover workers of all ages under the same system.
But it treated workers as the different tiers of the tiffin box, never acknowledging movements between the tiers, resulting in no savings and driving people from the fund.
None of the 33 million workers has joined NSF. Only 3.3 million government officers and public enterprise officials are covered by the government and 12 million employees are in the social security system.
The 12 million workers under the social security system are not sure whether the pension system can be trusted since risk management can hardly be found while management cost is high and the system gives them little information about their pension retention.
Involvement through the National Savings Fund has never happened as it hardly protects workers’ benefits.
They feel left out since the government’s contribution has never been verified – fully-paid or partly paid? The effectiveness of the spending remains in question.
An amendment to the Social Security Act in 1999 also resulted in losses for the insured, who had not been informed beforehand.
The amendment means the government’s contribution, according to Article 46, shall not be at the same rate as the employer’s and the employee’s.
This makes the government contribute less in the Social Security Fund. But it also has most control over the fund.
The employer and the employee both contribute to the sum for child allowances and retirement benefits at 3% of insured wages but the government contributes only 1%, resulting in a loss of about 20% of all contribution income each year.
Moreover, if an insured member is 55 years old and ends his social security programme before completing his contribution of 180 months, he shall receive a lump-sum amount of his own saving, which does not include the government’s contribution in the calculation, or meaning the government does not provide any contribution for retirement benefits at all.
However, the government makes contributions to the Private School Teacher Welfare Fund, Government Pension Fund and, in the future if any, to the National Savings Fund.
This raises questions about the equal treatment of social benefits among Thais. People should have an equal right to their retirement benefits.
The retirement benefit in the current system for workers who have no employer is the worker’s own savings under Article 40 of the Social Security Act. But workers are not informed about their financial plan for their future.
They have no idea which saving option they should choose or how much savings they will have when they retire.
Currently, there are five saving options but insufficient information has been provided. The government’s contribution also lacks fairness, not to mention the problem that 35 million people never get to participate in any mechanism of the Social Security Fund.
Further, managing the Social Security Fund is costly. No evaluation, reforms, or research about fund management has been implemented.
The lower the rate of contribution is, the less the reserve amount will be. Increasing the reserve amount can hardly be achieved due to the lack of participation.
Non-disclosure of information and lack of effective management have resulted in people distrusting the system and no one is confident they will have savings when they retire. It is clear: the pension system should be reformed.
For starters, pension funds should encourage saving and active participation among stakeholders. Combining the pension funds of private company employees and informal workers, as practised by the Social Security Office, will provide advantages such as lower fixed service costs.
The reform should focus on combining the different pension funds of workers aged 20-60 years who are outside the public sector, totaling 45 million people, into the same fund such as the National Savings Fund.
Then, the Social Security Office should take care of employment-related benefits such the unemployment benefit and workmen’s compensation benefit.
Individual savings should also be encouraged to ease the burden of an ageing society.
Only fairness, participation from all sectors, and control mechanisms will foster public trust. It is also important to have assessments, follow-ups, standardised reports, system improvements, and good management.
Good systems are sustainable and transparent. The next government should realise this is what people need in our rapidly ageing society. The pension system urgently needs reform. With political will, it is possible.
Worawan Chandoevwit, phD, is an adviser of the Thailand Development and Research Institute. Policy analyses from the TDRI appear in the Bangkok Post on alternate Wednesdays.
First published: Bangkok Post, April 4, 2014