Pension fund landscape to be diversified

Ageing population attracts a variety of pension funds. Photo: Freepik.com

Retirement credit is the first product for individual customers to enjoy a monthly pension to support flexible financial resources, helping customers become financially proactive for their individual consumption needs.

The lack of capital and increasing price of life has forced many citizens, including the elderly, to turn towards diverse financial solutions like payday loans or some pension-related loan options. Vietnam Post is one of the pioneers in providing the elderly with an optimal personal pension loan through its network of post offices nationwide.

“This scheme would help Vietnamese retirees to secure better medical aid, or grant financial assistance for their children and grandchildren,” Vietnam Post explained.

As the target customers are the elderly, Vietnam Post believes its wide physical coverage, including remote areas, could help them gain an upper hand and reach out to more potential clients. However, these customers belong to the baby boomer generation, they may feel they are lagging the latest digital banking trends and lending habits.

Likewise, Sacombank is also keeping up with efforts to provide diverse needs from different customers segments and boost the customer experience. The southern-based bank also bestows pension-backed loans for people under 65 with a loan amount of up to VND200 million ($8,700), 5-year loan tenure, and no collateral required.

LienVietPostBank also rolls out a lending programme for the elderly, with many similarities to products from Sacombank and Vietnam Post

“After retirement, many people think that they will have leisure time without too much stress about financial need. However, in reality, daily life often uncovers unexpected consumption needs. Therefore, the loan programme for pensioners is considered a good solutions for retirees who need to access credit for their plans,” LienVietPostBank highlighted.

Some other local banks, such as VietinBank and BIDV, also tap into this sector. Pension-backed loans only make up for a tiny proportion in banks’ portfolios, especially in comparison to a variety of products for the working population.

Banks and other credit institutions in Vietnam might be sceptical on pension credit due to customers’ age, habits, and preferences. Meanwhile, retirees may find also it difficult to approach complex loan procedures and financial records.

FE Credit – backed by VPBank and Sumitomo Mitsui Financial Group – is the first consumer finance firm in the country to roll out pension-backed credit, with the aim to provide a more optimal solution with simple and quick procedures without any collateral required.

“With our extensive network nationwide and vast experience in the unsecured loan segment, we proudly present our first-of-its-kind loan scheme targeting the local retirees. FE Credit has served more than 14 million customers and cooperated with more than 10,000 partners at more than 22,000 service introduction points,” a representative of FE Credit said.

“Compared to banks, the interest rate of consumer finance companies’ pension products is higher. However, this is widely understood as the nature of products with smaller loan amounts, shorter loan tenures, and higher risk costs compared to banks,” the representative added.

Accordingly, the maximum age threshold which can be eligible for the loan is 65 years, instead of the traditional 60. Senior citizens could lend a max loan amount of eight times as much as pension income, and four- or eight-fold higher than the standard income-proof product. Moreover, participants can enjoy the lowest interest rate among income-proof products.

According to the General Statistics Office, Vietnam’s population is ageing at an unprecedented rate. The country has 11.4 million elderly people at the age 60 and over, accounting for 11.86 per cent of the total population. Moreover, the ageing index increased from 35.9 per cent in 2009 to 48.8 per cent in 2019.

With such changes in demographic figures and to cope with contributed benefits for aged employees, Vietnam has developed attractive social insurance and pension programmes that offer full benefits and allowance to pensioners.

Data from Vietnam Social Insurance revealed that on average, participants of social insurance contribute in 28 years around 22 per cent to the retirement and survivorship fund, while receiving a 25-year average pension with an average rate of 70.1 per cent. Besides that, the ratio of expenses/revenue to the retirement and survivorship fund has been on an upward trajectory in the recent years.

FE Credit believed the rate of pension payment over the number of years of contributions in Vietnam is high, with the maximum level of 75 per cent for 35 years of contribution for men and 30 years of that for women, corresponding to a cumulative rate of 2.14 per cent per year of contribution for men and 2.5 per cent for women.