Social insurance lump-sum withdrawals in Viet Nam: trends, challenges and recommendations

When it comes to retirement pensions, the main objective of any system is to provide income security throughout old age. This is why only pensions delivered as periodical payments (mainly life annuities, but also means-tested benefits) are recognized by ILO standards, such as The Social Security (Minimum Standards) Convention, 1952 (No. 102), or the Invalidity, Old Age and Survivors’ Benefits Convention 1967 (No. 128), as benefits potentially adequate to properly protect individuals against the risk of outliving their own savings or assets. However, in some countries, contributory pension schemes can allow for lump-sum payment of part or the totality of workers’ pension entitlements. Lump-sums are an alternative arrangement that allow people to collect their full benefits as a single payment before retirement. This is a feature in only a few countries globally and is mostly, if not always, only accessible for workers close to or at the retirement age. Such lump-sum payments are more often seen in countries with systems of individual savings (defined contributions) like Malaysia and Singapore, rather than systems based on solidarity (defined benefits) such as Viet Nam, Japan or most western European countries. Viet Nam has, through Party Resolution 28, set ambitious goals in terms of its social insurance coverage rates. To meet these goals (set for 2030), social insurance participation must increase dramatically in the coming years. This can only be achieved by a combined increase in entry rates to social insurance (more workers participating in social insurance), and a decrease in exit rates (workers remaining in the system long enough to ensure their entitlement to retirement pensions and adequate income security in old age). Exit rates from social insurance in Viet Nam are particularly high, to a large extent driven by workers’ need to access lump-sum payments to ensure income security throughout different contingencies in their life cycles.