The draft amendment to the Social Insurance Law, submitted by the Government on July 11, is expected to be presented to and discussed by the National Assembly session in October 2023, passed in the May 2024 session, and become effective from January 1, 2025. Following the government’s directive to propose various options to limit the practice of lump-sum social insurance withdrawals, the Ministry of Labor, Invalids, and Social Affairs has put forward two feasible options to address the impact of lump-sum withdrawals on the fund’s integrity.
The Ministry of Labor, Invalids, and Social Affairs has proposed the following two options:
- Maintain the lump-sum social insurance withdrawal mechanism for employees who participate in insurance before 2025. Employees who start participating in social insurance from 2025 onwards will not be eligible for a lump-sum withdrawal.
- Maintain the current lump-sum social insurance withdrawal mechanism but add a provision that employees who wish to make a lump-sum withdrawal from 2025 onwards will only be allowed to withdraw a maximum of 50% of the time they have participated in the social insurance system.
Employees who participate in social insurance from 2025 onwards will not be eligible for a lump-sum social insurance withdrawal
Continuing the spirit of Resolution 93, which allows employees to reserve or withdraw their contributions as needed, current employees will be eligible for a lump-sum social insurance withdrawal after 12 months of resignation without further participation in the social insurance system, including both compulsory and voluntary social insurance.
If employees join the social insurance system after the effective date of the amended law, which is January 1, 2025, they will not be eligible for a lump-sum social insurance withdrawal except in cases where the withdrawing individual is of retirement age but has not contributed enough years to qualify for a pension, is immigrating abroad, or is afflicted by life-threatening illnesses.
According to the assessment of the Ministry, this option is sustainable and highly feasible, as current participants in the social insurance system will not be affected in terms of their benefits. However, the impact will be felt by future generations of employees, as they will struggle to build up sufficient financial reserves for financial risks.
Nevertheless, since this proposal does not prohibit social insurance withdrawal for employees currently employed, the number of withdrawals is unlikely to decrease in the coming years. The Ministry estimates that a noticeable decrease in the number of employees making social insurance withdrawals will not occur until 2030. Assuming a employee’s working age is around 40 years, it would take until 2064 for Vietnam to see an end to the practice of lump-sum social insurance withdrawals.
However, during this time period, due to the gradual decline in the number of employees seeking to withdraw insurance upon reaching retirement age, the pressure on the system will not be excessive, and the fund will remain preserved.
Employees participating in social insurance from 2025 can make a lump-sum withdrawal, but not exceeding 50% of the total contribution period
Starting from January 1, 2025, employees wishing to make a lump-sum social insurance withdrawal will only be allowed to withdraw a maximum of 50% of their total contribution period to the retirement and survivorship fund. The remaining time will be preserved for continued participation in the social security system and receiving benefits upon retirement.
This proposal is not related to employees who join the social insurance system before or after 2025. The second proposal only pertains to the rights of employees that will be affected by whether they choose to make a social insurance withdrawal before or after 2025.
Therefore, if this proposal is implemented, the social insurance fund of Vietnam may face significant pressure from the present time until the beginning of 2025, as employees rush to apply for lump-sum social insurance withdrawals before the amended law takes effect.
Among the two options, option 1 has received a higher level of support. According to a survey by VnExpress, as many as 90% of readers agree with option 1, while only about 10% choose option 2, which limits employees’ withdrawal rights to 50%.