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Does the minimum wage increase affect pensions in Vietnam?

For many middle-aged employees, they will not be too concerned about their current salary but instead will focus on the pension policies they will enjoy in retirement, especially in terms of retirement procedures, percentage of pension benefits, health benefits, etc. However, the current adjustment of the minimum wage has made a large number of employees in the middle-aged labor group, and the group of employees who have received their pension can’t help but wonder if the minimum wage increase will affect their pension in Vietnam?

The increase in the minimum wage from July 1, 2022, has had a great impact on Vietnamese society. Because, at present, the majority of Vietnamese employees are still living and working at the minimum wage, even lower. There are many cases where it is difficult for employees to find a job with the lowest salary because the Vietnamese labor market is saturated. The supply and demand ratio is very unbalanced and is not adequate for a country with 100 million people.

That’s why when the new policy on minimum wage was issued, many employees wondered if this salary increase will affect their income now as well as when they get old.

Previously, at the beginning of 2022, despite Vietnam’s difficult economic situation, the pension rate was adjusted nationwide with a general rate of 7.4% from January 1, 2022.

Those who retire before January 1, 1995, if they have a monthly pension or social insurance allowance of less than 2.3 million VND, they will also be adjusted to increase by VND 200,000 or reach the level of VND 2.5 million if they are receiving a salary from 2.3 million VND to less than 2.5 million VND.

Currently, the regional minimum wage has increased by 6% compared to the previous minimum wage. The minimum monthly salary after the increase is 4.68 million VND for region 1, 4.16 million VND for region II, 3.64 million VND for region III, and 3.25 million VND for region IV.

The minimum wage increase affects pensions in Vietnam

With the policy of increasing 7.4% pensions for all retired employees from the beginning of 2022, it is certain that with only 6, 7 months passed, the Government of Vietnam will not issue a direct new law on adjusting pensions.

Accordingly, the increase in the minimum wage this time will not have a direct effect on the current pension.

However, given that most businesses are paying the minimum social insurance premium, which is equivalent to the minimum wage, an increase in the minimum wage adjustment will also mean an increase in the social insurance contributions for all employees.

Of the total 31% of the salary paid to the Social Insurance Fund, 22% of the total salary is contributed to the retirement fund (14% of the employer and 8% of the employee). Accordingly, pensions account for most of the social insurance contributions of both employees and employers.

Therefore, an increase in the level of social insurance contributions will also indirectly affect the pension enjoyment of employees. Because, assuming the same maximum enjoyment rate is 75% of the average salary paid for social insurance for the entire working life, when the level of social insurance premium increases, the employee will also receive an increase for the years in which there is an adjustment in the level of social insurance contributions because the pension calculation factor is based on the average salary paid for social insurance of the entire working life of the employee.

Accordingly, for employees who are about to retire, although not much, it is certain that pensions will also be positively impacted by the increase in the minimum wage.

Even if the employee decides to retire at the end of December 2022, 5 months with the new social insurance contribution will also have a slight increase to the employee’s pension when they decide to retire.

ASL LAW is the top-tier Vietnam law firm for Employment and Labor Law. If you need any advice, please contact us for further information or collaboration.


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