Ageing population requires pension reform in Viet Nam

Viet Nam is currently a ‘young’ economy, with just nine percent of the population over the age of 60 years and a median age of 25 years. But life expectancy is increasing and fertility rates are decreasing. The elderly will make up more than a quarter of the population by 2050.

Viet Nam’s pension scheme needs immediate reform to avoid future inequities between generations. The existing publicly-managed pay-as-you-go defined benefit (PAYG DB) pension scheme is fragile and predicted to deteriorate. Crisis is imminent.

A research paper from the Oxford Institute of Ageing, in the UK, aims to measure the size of pension liabilities in Viet Nam and to evaluate the economic implications for relationships between generations.

A 1989 study comparing Germany, Japan, Sweden and the United States indicated trends that would increase inequities between generations. Later research claimed that countries with rapid changes in demographics and with a long history of PAYG pension schemes would face the greatest problems. There have been few studies on pension liabilities of the current system in Viet Nam but those that exist, point to future debts and future depletion of the fund.

The current research too finds that pension liabilities in Viet Nam will rise. It shows that future generational inequities are inevitable if the government decides to cover these liabilities with increasing taxation, as current and future workers will have to pay for it. It tests out different potential future scenarios that could relieve this burden. These include increasing contribution rates, increasing the retirement age for female contributors from 55 to 60 years and shifting to a funded scheme.

The findings include observations that:

• Increasing the retirement age for women would relieve some of the burden on current and future workers.
• But this would leave young female contributors with lower benefit rates than older ones.
• The most preferable scenario involves shifting to a funded scheme. Current and future generations would bear lower burdens if the government used their taxes to fund their contributions. 

The author points out that the estimates presented are subject to differing degrees of uncertainty. The truth however, is that while pension liabilities are small in Viet Nam today, the country’s rapidly shifting demographics could bring difficulties in the future. The paper concludes with the following recommendations to policymakers:

• Viet Nam’s pension scheme needs immediate reform if it is to be financially viable.
• Hesitation or postponement may lead to endless ‘generational battles’ and painful social and economic consequences.
• Promoting economic growth is a possible solution.

Source(s):
‘Pension Liabilities and Generational Relations: The Case of Vietnam’, Oxford Institute of Ageing Working Paper No. 106, by Giang Thanh Long, 2006 (PDF) Full document.

Funded by: Help the Aged, Oxford Institute of Ageing

id21 Research Highlight: 2 October 2007

Further Information:
Giang Thanh Long
Faculty of Economics,
National Economics University (NEU)
207 Giai Phong Street, Hai Ba Trung District,
Hanoi 10000
Viet Nam

Tel: +84 (0)4 8693869
Contact the contributor: gtlong_grips@yahoo.com

National Economics University (NEU), Viet Nam

Oxford Institute of Ageing
University of Oxford
Manor Road Building
Manor Road
Oxford, OX1 3UQ, UK

Tel: +44 (0)1865 286193
Fax: +44 (0)1865 286191
Contact the contributor: administrator@ageing.ox.ac.uk

University of Oxford, UK