Currently, the method of calculating pension between employees working in the private sector and employees working in the state in Vietnam still has fundamental differences, leading to many discontented opinions about the pension calculation scheme. In the following article, ASL LAW will analyze the difference in pension calculation method and give a perspective on this difference.
At the beginning of May 2023, at the meeting with voters of the 10th unit of the Ho Chi Minh City National Assembly Delegation organized by the city’s Labor Federation to hear comments on the draft amendments to the Law on Social Security and the Law on Housing, some representatives had presented their views on the difference between the method of calculating pensions between the private sector and the state of Vietnam.
Currently, in the period from 2020 to 2024, when employees working in the state sector in Vietnam start participating in social insurance, when they reach retirement age, the pension will be calculated according to the average monthly salary of social insurance contribution payment of the last 20 years before retirement as prescribed at Point e, Clause 1, Article 62 of the Law on Social Insurance 2014 No. 58/2014/QH13 (“Law on Social Insurance 2014”).
However, if compared with employees working in the private sector, the pension calculation period based on the last 20 years of paying social insurance contributions is still unfair because most private employees have been working for more than 30 years, even up to 40 years, and they are entitled to a pension based on their full time participation in social insurance contributions, that is, from the time they started working with low wages due to lack of skills and experience.
In contrast, the public sector is calculated pension based on a certain number of last years before retirement. Then, with the general trend, the older you get, the more experience you accumulate, the higher your salary will be, this is unfair. There are very few cases in society that the older you get, the less income you receive and, accordingly, the salary you pay for insurance is less than when the moment you first started working.
The truth of the difference between the employees of the two sectors
Clause 1, Article 62 of the Law on Social Insurance 2014 stipulates the method of calculating pension according to the schedule regime, based on the time period of the state employees participating in social insurance, that is, gradually changing to ensure it does not create a policy shock for employees in the state sector. Specifically:
• Before 1995, calculate according to the average monthly salary on which social insurance contributions are based for the last 5 years before retirement.
• From 1995 to the end of 2000, calculate according to the average monthly salary on which social insurance contributions are based for the last 6 years before retirement.
• From 2001 to the end of 2006, calculate according to the average monthly salary on which social insurance contributions are based for the last 8 years before retirement.
• From 2007 to the end of 2015, calculate the average monthly salary on which social insurance contributions are based for the last 10 years before retirement.
• From 2016 to the end of 2019, calculate according to the average monthly salary on which social insurance contributions are based for the last 15 years before retirement.
• From 2020 to the end of 2024, calculate according to the average monthly salary on which social insurance contributions are based for the last 20 years before retirement.
• From 2025, calculate according to the average monthly salary on which social insurance contributions are based for the entire period of participation in social insurance (Similar to employees in the private sector)
This adjustment proves that Social Security, the National Assembly, the Government of Vietnam and other ministries and agencies are aware of the inadequacy when there is a distinction between state employees and the private sector, especially pension, which is a sensitive and especially important topic for employees’ lives, related to Vietnam’s social security policy.
However, from the perspective of many employees’ representatives in the private sector, the 30-year adjustment from 1995 to 2025 has been slow and unfair to them. Especially when this adjustment only applies to the time when employees start joining the social insurance regime, not really affecting the benefits of those who have already participated in social insurance up to the present time.
That means that for employees born in 2007 or later and join the state work in 2025, there will be fairness for the next generations between the two blocks. However, for employees who are already of working age, this adjustment has no practical support for them. Employees working in the private sector have so far not made any adjustments to the method of calculating the pension based on the number of years, but it is always calculated according to the entire payment period.
For example, if 2 employees have worked in the public and private sectors since 2000 and decided to retire in 2030, the employee working in the enterprise will have their pension calculated based on the average salary for 30 years of work, while the state employees only have to calculate the average salary paid for social insurance contributions for the last 6 years before retirement, i.e. from 2024 to 2030.
Temporarily ignore the problem of more seniority, employees will have the tendency to receive higher wages, but only considering the value of money, in 2010 and 2011 Vietnam suffered from very high inflation, up to more than 10% per year. On average, the salary of employees paid before 2008 was very low, only a few hundred thousand VND/month.
Although there is a mechanism of social insurance devaluation, this mechanism is always not commensurate with the actual devaluation of the Vietnamese currency and the actual salary received by employees in each period.
Employee working at the enterprise will be affected by the above disadvantages even though they retire 20 years after the event occurs, but employee working in the State of Vietnam will be completely unaffected when it comes to pensions.
It is for the above reasons that many representatives of employees working in the private sector have voiced their request to reclaim their rights, specifically considering the establishment of a mechanism for calculating pensions for employees working in the private sector to follow a specific route similar to that of the public sector on the principle of sharing so as not to lead to too large a disparity between beneficiary groups, creating too big a difference between the regimes of the two sectors.
Difficult point of the policy
Since 1993, when it was decided to apply the social insurance regime for the entire Vietnamese workforce, including the private sector, policymakers have been aware of the problem of disparity in income between the pension calculation method for two blocks.
According to international standards, pension must be calculated according to the entire period of employee participation in the system according to the principle of contribution – benefit. However, in Vietnam, after the wars with many citizens made contributions to the revolution, the method of calculating preferential pensions is also one of the benefits that the Government grants to this sector, later converted mainly to the employees working in the State.
Matter of fact, State officials for their time of dedication could be rewarded with houses, land, and real estate with value that lasted until the present time when the land fund was still abundant.
In order to avoid causing too great a shock to the state labor force, leading to the mass of employees withdrawing from the state and moving to the private sector, in 1993, the Government issued a solution to gradually reduce the benefits of the employees working in the public sector, to the average time frame of 5 years as specified above, a total of 32 years to 2025 will apply the calculation of the entire period of insurance participation like the private labor sector.
Is it really unfair?
Countering the idea of pension benefits that the state employees have enjoyed for more than 30 years, some representatives of the state labor side also said that this calculation method is also partly based on the difference in income, salary between the two sectors because on average, employees working for enterprises will have a higher monthly salary than employees working in the State.
Even when considering two newly graduated employees, the salary of the enterprise is also about 1.2 million VND/month higher than that of the state-employed employees when the minimum wage for unskilled and untrained employees in enterprises is 4.68 million VND, but the salary for Vietnamese State employees is calculated by a coefficient, about a coefficient of 2.34 x base salary of 1.49 million VND for newly graduated university employees, around 3.5 million VND monthly income.
In addition, employees working for enterprises will have a mechanism to consider salary increases in a shorter term than state employees, about 6 to 12 months depending on the business while State employees are required by law to only review every 36 months, to consider adjusting and raising the salary coefficient.
Therefore, State employees have a lower monthly salary and only reach a stable level in the last years before retirement, which will be offset by a higher pension if they decide to devote most of their career to the State, serving the Government and the people.
The harmonization of labor interests between the public and private sectors in Vietnam is one of the concerned issues that are being discussed a lot in recent times. Ensuring a balance and fairness in the distribution of labor benefits between these two sectors is very important to ensure the sustainable development of the economy and bring benefits to the whole society.
Although the problem of balancing benefits, especially retirement between the two sectors, is still difficult and unfair at the moment, but in the future, especially from 2025 onwards, in the next generation of employees, there will be no contradiction in the method of calculating pension anymore, thereby creating stability for society and contributing to tightening the relationship between the two labor sectors.
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