Fund for social insurance to be bolstered

The fund’s scale is expected to swell rapidly in the next few years, Photo: Diem Le

In light of the National Assembly’s (NA) law-making programme, the amended Law on Social Insurance, slated to be passed at the upcoming NA seventh session this May, encompasses several contents on using the fund to invest back into the economy.

In the draft amended Law on Social Insurance, the Ministry of Labour, Invalids, and Social Affairs (MoLISA) proposes several amendments and supplementations with the prime target of boosting the fund’s investment efficiency and reaching the fund balance status in the long term.

Accordingly, the ministry proposes the amended law to supplement the form of authorised investment, and to add a regulation mandating that the social insurance fund’s investment activities are entitled to independent auditing on an annual basis.

The proposal aims to diversify investment forms of social insurance fund according to an appropriate roadmap. After each stage, it shall be evaluated to make suitable proposals for implementation in the next stage.

The MoLISA assesses that the move could contribute to enhancing the fund’s investment efficiency and reducing the burden on fund protection from part of the state budget in the long term. Better investment efficiency and improved long-term financial balance shall also help mitigate the burden of contribution between generations, it said.

However, the ministry asserted the need to have in place specific regulations on assessing the fund’s investment efficiency and risk level as a new form of investment helps boost investment efficiency, yet at the same time creates some additional risks, so that the regulations on evaluating investment risk and efficiency need to be made more clear to identify and resolve the risks encountered when investing.

Deputy Minister of Labout, Invalids, and Social Affairs Nguyen Ba Hoan said the draft amended law is still in the process of gathering comments and striving for completion. “The Compilation Committee, in tandem with the Ministry of Finance, is reviewing and reassessing social insurance fund’s diverse investment forms in past years, studying the most efficient investment method, and strictly observing the target of ensuring the fund’s safety,” said Hoan.

Figures by Vietnam Social Security (VSS) show that the investment scale of the social insurance fund has grown steadily, with the on-year average growth rate touching 20 per cent.

During 2010-2018, the fund’s annual investment scale increased 25 per cent on-year. By 2019, the fund’s investment scale had reached 13 per cent of the GDP, equal to 1.45 times that of 2016.

The fund’s investment scale is expected to swell rapidly in the next five years as VSS now possesses an investment volume in the range of $5.83-6.66 billion annually, instituted from different sources such as the amount resulting from the disparity between the collection and expenditure, investment yields, and deposits during the year.

However, the gap between collection and expenditure is being increasingly narrowed amid spiking demands for insurance payments.

By the end of 2021, the total balance of the social insurance fund was nearly doubled compared to 2016, the year the Law on Social Insurance 2014 came into force, with about 18 per cent increase in the size of the fund annually.

The average investment yield in the entire period grew positively and was higher than the consumer price index growth.

VSS’ investment fund has become the country’s top public financial fund, making a positive contribution to the development of the domestic capital market, and ensuring stable interest rates and liquidity in the government bond market.

However, the fund’s investment activities have also exposed some limitations.

“Due to specific characteristics of social security fund, the investment forms are strictly regulated,” said Tran Dinh Lieu, deputy director general of VSS. “The associated investment portfolio lacks diversity, mainly focusing on buying government bonds that account for 85 per cent of the fund value, besides buying corporate bonds and certificates of deposit of commercial banks that offset the remaining 15 per cent. With such a structure, the investment efficiency remains modest, albeit the fund’s investment activities are considered safe.”

According to Lieu, in addition to effectively expediting social security regimes and policies, VSS is actively bolstering management efficiency, ensuring the fund’s financial safety, and striving to reach balance status for the long haul.

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