Last week, the Social Security Office (SSO) came up with a fresh plan to increase contributions of members into the Social Security Fund (SSF) to shore it up ahead of the huge outflow of pension payments expected in the near future.
The SSO's idea is to raise the cap of base salary for payroll deductions from 15,000 baht to 20,000 baht a month. This means the maximum deduction, which would be funnelled into the SSF, would rise from 750 baht to 1,000 baht a month, an approach the SSO believes will ensure the ability of the fund to meet its old-age pension payout requirements over the next 47 years.
However, the contribution will increase on a sliding scale over five years to ease the burden on employees and prevent opposition.
Under the plan, the proposed cap of base salary in the first year will be expanded to 16,000 baht per month, meaning that the contribution rate would rise to 800 baht per month from 750 baht. The cap will continue to rise by 1,000 baht for the next four years until the contribution reaches 1,000 baht.
The proposed compulsory increase will be a burden on both employees and employers who are required to contribute to the fund equally.
According to SSO projections, without the contribution rate hike, the Social Security Fund would run dry by 2036, when the number of people at or above retirement age is expected to be 30% of the total population.
For employees, the increase in contributions may affect their income to an extent for the time being but they will receive the benefit when they retire.
Research by the Faculty of Commerce and Accountancy of Chulalongkorn University found that retirees of private companies had average expenses of 10,116 baht a month, according to the Prachatai website.
But the Social Security Fund, with more than 14 million members, has failed to introduce payouts that match inflation and increased costs of living. The fund's pension payouts are varied but less than 10,000 baht a month.
Under the fresh proposal, the increase of salary base cap to 20,000 baht will also result in a necessary rise in the monthly payout each pensioner receives.
Unfortunately, the increase in salary base cap may not be the only measure needed to strengthen the financial status of the fund.
The SSO also wants to raise the age at which workers are eligible to receive pension payments from 55 to 60.
Many private companies these days allow retirement for those aged at 55 or above, while a number of people in agencies with 60-year-old retirement plans opt for early retirement.
If the SSO raises the pensionable age to 60, it will affect the retirement plans of many employees, most of whom have contributed to the scheme from the beginning, or for more than 20 years, under the assumption that their pension will be paid at 55.
The method that the SSO should adopt in parallel with the increase of the cap of base salary is to improve its investment efficiency.
The Social Security Fund is managed under a deeply bureaucratic system and suffers limitations in the efficiency of its management despite most of the 1.9 trillion baht pot being funded by employers and employees in the private sector.
The fund, which is now managed conservatively, may have to increase investment in risky assets with high returns. But to do so, it needs its asset management processes restructured to be both more professional and more transparent.
