How to stop Vietnamese workers cashing out of social security

This year Vietnam witnessed a seemingly rather odd practice. Hoards of people have been queuing up overnight making one-time withdrawals of their entire social security funds. Friedrich-Ebert-Stiftung spoke with a labour representative about the pressures driving the trend, the potential scope of the problem, and possible solutions. 

“If this situation continues, it will be worrisome because currently there are only about 17.5 million people participating in the social insurance scheme,” said Vu Minh Tien, director of the Institute for Workers and Trade Unions. The World Bank estimates the country’s workforce at 55 million, for a population of 98 million.

“Workers choose the one-time withdrawal despite knowing its disadvantages, mainly because of economic reasons: poverty and debt pressure,” Tien said. “Some desperately need VND10-20 million [USD420-840] to pay off high-interest so-called ‘hot’ loans, medical expenses for family members, or even to take care of daily expenses such as rent payments.”

From 2016 to 2021, 4.06 million people participating in social insurance chose the one-time withdrawal, pulling a total of VND131.94 trillion (US$5.56 billion) out of the system, according to a VNExpress news report in March citing the Ministry of Labor, Invalids and Social Affairs. More than three-quarters of them were aged 20-40, it said.

The Covid-19 pandemic and associated layoffs have accelerated the withdrawals. The number of people cashing out in 2021 and 2022 combined was 1.85 million, a significant increase in the annual rate.

The potential consequences range from the short to the long term, and are likely to impact workers and their families, as well as the social security system, Tien explained. The most affected will be lower-income workers, who risk facing sickness or old age with no savings, pension, or health insurance, “becoming a burden for their relatives and society,” he said.

Tien outlined several urgent steps to reduce the pressures on citizens to cash out of the social security system, and also to increase the appeal of remaining within it.

“In order for workers to not choose one-time withdrawals it is critical that their salary meet the cost of living and secure some savings – over and above social security contributions – to cover the risk of illness, or loss or reduction of income.”

In addition, “the government and trade unions of all levels need to better communicate the benefits of the state's social security system in general, and of each social insurance regime in particular,” he said. “We need to help workers to understand the long-term disadvantages for themselves, their families and the whole of society if they opt out.”

Another initiative, he explained, could be for banks to cooperate with the state agencies handling the withdrawals. When faced with an application, these agencies could offer a comparable amount as a loan instead, with appropriate interest and extendable repayment periods. The one-time withdrawal would not be made, but that money used as collateral, he suggested. “This would be a solution chosen by many workers to both solve their immediate [cash-flow] problems and prolong their social insurance participation,” he said.

Several legislative reforms at government level would help further, Tien said, namely:

- amending the Law on Social Insurance to ensure the flexibility of payment and enjoyment of social insurance, and to be suitable for different labour groups;

- introducing specific support mechanisms (e.g. unsecured credit and microfinance) for disadvantaged groups such as low-income migrant, sick or injured workers, or households where all breadwinners lose their job at the same time;

- enforcing rules around contributions, strengthening inspections and handling of violations of social insurance payment such as: not paying, delaying, paying lower rates compared to regulations;

- ensuring equality of voluntary with compulsory social insurance; and

- expanding compulsory social insurance participation, in particular to informal workers.

Several proposed amendments to the Social Insurance Law are scheduled for discussion at the National Assembly in October, the VNExpress report said. One would make workers eligible for their pension after 15 years of contributions, down from the current 20, to encourage them to remain in the system. Another proposal would reduce the amount of the one-off withdrawal to half of previous contributions, rather than the total.

Tien said the government’s overall objective should be a strategic roadmap towards a universal social insurance. Such a task would be “a long-term and difficult ordeal, but necessary.”