This picture taken on November 30, 2022 shows workers waving to bosses and guardians on their last day at work at Taiwanese Ty Hung factory in Ho Chi Minh City. (Photo: Nhac NGUYEN / AFP)

This picture taken on November 30, 2022 shows workers waving to bosses and guardians on their last day at work at Taiwanese Ty Hung factory in Ho Chi Minh City. (Photo: Nhac NGUYEN / AFP)

An Ageing Vietnam Struggles for a Reliable Social Insurance System


Vietnam’s beleaguered national social insurance scheme is in dire need of an overhaul before its population ages to a point of no return.

Vietnam is facing a significant challenge as its population continues to age at an alarming rate. A dependable and affordable national social insurance system has become imperative. Despite years of effort, Hanoi has encountered enormous difficulties in expanding social insurance coverage to ensure the sustainability of the country’s social security fund, Vietnam Social Security (VSS). Currently, only 38 per cent of Vietnam’s labour force (or 17.5 million people) are registered for social insurance.

The numbers are telling: in 2020 and 2021, withdrawals from the social insurance system outpaced new enrollments – a first in the fund’s history. In 2020, 761,000 withdrew while 426,000 new participants enrolled. This gap widened further in 2021 with 863,200 withdrawals and just 358,000 new participants.

Compounding the issue, VSS announced in early March that more than four million people had opted out of the system and received lump sum payments between 2016 and 2021. This can be partly attributed to the economic consequences of the Covid-19 pandemic and falling global demand for Vietnam’s exports, which drained workers’ savings and led to waves of job losses. As a result, many individuals withdrew their social insurance premiums, originally intended for their pensions, to meet their immediate needs.

The low participation rate in Vietnam’s social insurance programme is not only due to the lack of interest from workers — structural issues within the system also present serious challenges.

First, despite boasting one of the highest contribution rates in Asia — at 32 per cent of an employee’s income, inclusive of mandatory fees — the programme’s lack of transparency and accountability remain concerns. The sole authorised agency managing the contributions, the VSS, has never released a financial report explaining how the fund is managed and invested. The State Audit audits the fund every three years, meaning that the public is made aware of its financial state only at that time via state media. The audit is not publicly accessible.

This lack of transparency, coupled with the VSS’s occasional public warnings of the fund’s potential depletion, creates constant anxiety among Vietnamese workers about losing their pensions or receiving only a minimal payout due to inflationary risks.

Compounding matters, although participating in social insurance is compulsory for all formal employers and workers, the VSS struggles to enforce this rule. According to a 2016 report by the General Statistics Office and the International Labour Organisation, out of 19.9 million workers employed in the Vietnamese formal sector, more than six million do not have long-term labour contracts or do not participate in compulsory social insurance. This means that the latter are treated as informal workers and therefore possibly denied access to social insurance.

Even those fortunate enough to work for employers who pay social insurance contributions are not guaranteed their rights. At end-2022, more than 2.7 million workers had had at least a month’s worth of their social insurance left unpaid by their employers, resulting in a total shortfall of more than VND13 trillion (US$600 million).

Meeting this fundamental need is essential to restoring trust but requires the VSS to finally act as a service for its members instead of a bureaucratic agency that mainly serves the state’s purposes.

These problems have encouraged many Vietnamese workers to opt out of the social insurance scheme at the earliest opportunity. In a recent survey, only 19 per cent of workers said they would keep paying their social insurance premiums if they lost their jobs.

The Vietnamese government aims to bolster its struggling social insurance system by amending the existing Social Insurance Law by 2024. However, this has sparked a heated public debate on how to regulate lump sum payouts. Currently, most contributors can opt out of the VSS relatively easily. For instance, employees who have paid into the programme for fewer than two decades can withdraw after just a year of unemployment. Those with terminal illnesses, who move abroad, or who have reached retirement age without contributing for at least 20 years are also able to withdraw.

The government wishes to construct additional barriers to such withdrawals, such as by capping the lump sum payout at the amount existing at the halfway mark of a worker’s contribution period, to prevent draining the VSS fund and to increase its sustainability. Workers, however, want to have an exit option due to their distrust of the system.

The government’s concern is valid, especially given the projected increasing burden of welfare costs as Vietnam’s population continues to age. However, denying payouts to impatient contributors may not be wise. In 2015, nearly 90,000 workers in Ho Chi Minh City took to the streets in a rare public protest against an amendment of the Social Insurance Law which had restricted lump sum payouts for workers who wanted to withdraw. In response, the National Assembly had to backtrack and make a “special revision” to the law, despite it already being passed. Any new restrictions against early lump sum withdrawals could provoke a similar backlash and further discourage workers from joining the VSS.  

Rather than imposing more restrictions, the government should offer a wider range of choices for account members to optimise their funds while simultaneously instituting more conditions for withdrawals that account for contributors’ diverse needs such as housing, healthcare, and education. Successful models in the region like Singapore and Malaysia have long implemented such policies.

On the financial front, the VSS should diversify its portfolio and, more importantly, be more transparent and allow workers to decide how their money is invested. Currently, the VSS likely underperforms because the bulk of the fund is either loaned directly to the state budget (75 per cent) or indirectly by buying government bonds (11 per cent). Most of the remainder goes to sizeable state-owned commercial banks in the form of loans and savings.

The government must also prioritise increasing the accountability of the VSS. As workers contribute their hard-earned money to the fund, they have the right to know more about the fund’s financial status, investment choices, and management. Meeting this fundamental need is essential to restoring trust but requires the VSS to finally act as a service for its members instead of a bureaucratic agency that mainly serves the state’s purposes.

In 2021, a World Bank report projected that Vietnam would be ageing by 2015 and become an aged society (defined as one where those 65 years and older account for 10-19.9 per cent of the total population) by 2035. Data suggests that Vietnam, like China, will get old before it gets rich. Without necessary structural reforms, including to the VSS, providing adequate welfare for the majority of ageing and aged Vietnamese will be an increasingly uphill battle.


Nguyen Khac Giang is Visiting Fellow at the Vietnam Studies Programme of the ISEAS – Yusof Ishak Institute. He was previously Research Fellow at the Vietnam Center for Economic and Strategic Studies.