During last week’s session of the National Assembly, a proposition to postpone the consideration and approval of the revised Social Insurance Law to the 8th meeting session was put forward by several deputies. The rationale behind this delay is to ensure a comprehensive evaluation of the impact of new wage policies on social insurance regulations and to gather feedback from the wide array of affected workers.
Initially anticipated to be passed in the current session for enactment by July 1, 2025, the proposed revisions to the Social Insurance Law have ignited significant debate. Given its implications for the livelihoods of millions of workers, this legislation has drawn considerable public interest nationwide.
Central to the debate surrounding the revised law is the provision allowing workers to withdraw their social insurance contributions in a lump sum.
According to a report by Việt Nam Social Insurance, as of 2023, 39.25 per cent of the labor force was participating in social insurance, with 31.52 per cent covered by unemployment insurance. However, there has been a notable increase in the number of people claiming benefits. By December 31, 2023, those opting for a one-time social insurance payout had risen by 20.58 per cent.
By April 2024, nearly 121,900 individuals had chosen to receive a one-time social insurance payout, marking the highest recorded number to date. Projections indicate that should this trend persist, approximately 1.4 million people will claim a one-time payout in 2024.
In discussions regarding the draft law, many lawmakers emphasized the necessity of finding optimal solutions to prevent millions of workers from exiting the social safety net and to ensure their financial security in old age.
Social insurance serves as a safety net for workers both during employment and retirement. However, in the aftermath of the COVID-19 pandemic, there has been a surge in workers opting to withdraw their social insurance in lump sums. This trend not only poses a threat to the national social security system but also directly impacts the long-term welfare of the workers.
The majority of individuals opting for a one-time payout are young workers, aged between 20 and 40, comprising approximately 77.5 per cent of the total. This suggests that immediate needs take precedence over long-term benefits for young workers, driven by financial pressures such as starting a family or investing in education.
The Ministry of Labour, Invalids and Social Affairs has acknowledged that a significant portion of workers in industrial zones have low incomes and limited savings. When faced with job loss, these individuals encounter immediate financial needs, such as family expenses or educational investments for their children.
The COVID-19 pandemic has exacerbated this situation, particularly affecting businesses in labor-intensive industries like tourism, hospitality, transportation, education, and garment manufacturing. In 2020, approximately 60 per cent to 80 per cent of workers in these sectors experienced temporary job loss, further contributing to the increase in one-time social insurance payouts.
While these payouts may alleviate immediate financial hardships, they carry long-term repercussions. Workers who withdraw their social insurance funds in a lump sum receive less money than their contributions and forfeit short-term benefits such as sick leave or maternity leave, as well as long-term benefits like pensions and lifelong healthcare benefits. This action effectively removes them from the social security system, rendering them vulnerable in old age and placing additional burdens on society and their families.
The draft law proposes two options to address the escalating trend of one-time payouts.
The first option allows workers who have contributed to social insurance before the revised law takes effect to withdraw their funds after 12 months of unemployment. After July 1, 2025, new workers would not be eligible for one-time withdrawals, except under specific conditions.
The second option permits workers to withdraw 50 per cent of their contributions to the retirement and survivorship fund, with the remaining amount preserved for future benefits. This policy applies to workers who have contributed for less than 20 years and have been out of the workforce for 12 months.
Each option has its advantages and disadvantages, raising concerns about fairness and the adequacy of funds to address immediate needs and ensure long-term security. Given the current economic challenges, many workers require funds to manage short-term difficulties. Restricting one-time withdrawals could provoke adverse reactions and force workers into difficult situations. Conversely, allowing withdrawals may undermine long-term social security goals.
With a significant vulnerable population, social security policies must be comprehensive. This necessitates combining measures such as preferential loans, job training, and market development to support livelihoods and ensure flexibility, alongside social insurance.
Several deputies have proposed integrating both options to balance immediate needs and long-term benefits. They suggest applying the first option to workers with contributions before the law takes effect and the second option to new participants. Additionally, they call for clarity on the conditions for withdrawing 50 per cent of contributions.
With only 30-40 per cent of the labor force covered by mandatory insurance, it is crucial to consider developing private pension and social insurance funds to provide workers with more options and flexibility.
The Ministry of Finance has stated its collaboration with the labor ministry to evaluate voluntary supplementary pension regulations and develop a multi-tiered social insurance system to ensure sustainability and effectiveness.
Under Decree 88/2016/NĐ-CP, dated July 1, 2016, only enterprises with a certificate of eligibility can manage voluntary supplementary pension funds. This includes life insurance and fund management companies legally established in Việt Nam.
Việt Nam’s social inclusion vision for 2035 underscores the need to support the growing middle class in managing risks and pursuing opportunities in a market economy. With a rapidly aging population, the country faces challenges in elderly financial protection, healthcare, and long-term care.
Social policy must adopt a comprehensive and forward-looking perspective, catering to the requirements of a burgeoning urban and aging middle class. This necessitates a shift in focus from merely alleviating chronic poverty to guaranteeing ongoing prosperity and effective risk mitigation.
By 2035, Việt Nam aims to achieve a predominantly middle-class society, with more than half the population expected to be part of the “global middle class”. This demographic will demand minimum standards of services, financial protection, and conditions for decent work, including affordable healthcare, quality education, old-age financial protection, care services, and basic worker protections.
The pension system faces significant challenges, including low coverage and financial sustainability issues. Việt Nam aims to expand pension coverage to 60 per cent by 2030 through a diversified approach, including subsidized coverage for informal workers and reforms to the contributory pension system. These reforms will involve raising the retirement age, eliminating gender differences in retirement ages, and reducing incentives for early retirement. Despite these efforts, pension spending is projected to rise significantly, potentially reaching 6-8 per cent of GDP by 2035.
Việt Nam’s social safety net system requires modernization to address fragmentation, poor targeting, and outdated delivery systems. Reforms are needed in policy coherence, beneficiary identification, administrative machinery, and area-based anti-poverty programs. Additionally, the growing demand for aged and long-term care must be addressed, with a focus on home- and community-based care, supported by enhanced state financing and private sector provision.
In conclusion, the revised Social Insurance Law must address the immediate financial needs of workers while ensuring long-term social security. Balancing these goals requires flexible policies capable of adapting to economic challenges and safeguarding workers’ rights.
*Võ Trí Thành is a former vice-president at the Central Institute for Economic Management (CIEM)
