Voluntary pension insurance put on the right track

"The Ministry of Finance (MoF) is now working on the long-awaited circular guiding the establishment of voluntary pension funds and the implementation of pension insurance for release this month," said a circular drafter who is also the representative for the MoF's Insurance Supervisory Authority.

Pension insurance is a voluntary form of savings to fund retirement, usually supported by employers and encouraged by the government through tax benefits. It benefits people by providing financial independence and security during old age, aids the government by channeling individual savings to national development, and helps employers by providing an efficient means of rewarding their employees.

Under the circular draft, to be allowed to supply pension insurance products, insurance firms must meet the hold charter capital of more than VND1 trillion ($48 million), have a liquidity ratio higher than VND300 billion ($14.4 million), and are obligated to establish a voluntary pension fund not lower than VND200 billion ($9.6 million).

Currently, some insurance firms which have qualified to implement pension insurance such as Dai-ichi, Bao Viet, Prudential, AIA, Manulife and PVI Sun Life are awaiting the circular’s imminent release.

Some of these firms such as Dai-ichi and Bao Viet have established voluntary pension insurance products which will be submitted to the MoF for approval after the circular comes into force.

Meanwhile, in late June, the MoF also released Decree 65/2013/ND-CP guiding the implementation of the Personal Income Tax (PIT) Law which took effect from July 1, 2013 which stipulated conditions for insurers to implement pension insurance products.

Firstly, Article 3 of the decree regulates that accumulated premiums from life insurance and other non-compulsory insurances in the voluntary retirement fund, which are bought or paid for by the employers, is included in taxable incomes of individuals.

Before paying the insurance amount, individuals, insurers and companies managing the voluntary retirement fund are responsible for withholding tax at the rate of 10 per cent for accumulated premiums from July 01, 2013.

Secondly, the decree states that the maximum premium level of  the voluntary retirement fund that is deducted from taxed incomes specified in this clause does not exceed VND1 million per month in accordance with the MoF guide. 

In cases where individuals who reside in Vietnam but work abroad and having incomes from businesses, wages or salaries abroad have participated in buying compulsory insurance in those countries, the individuals are entitled to deduct these premiums from their taxable income. These types of taxes incurred while working abroad incude social insurance, health insurance, unemployment insurance and professional liability insurance.

Thirdly, the revised law raised the threshold of personal income tax from the current VND4 million ($190) to VND9 million ($428) per month and raised the deduction for families from the current VND1.6 million ($76) to VND3.6 million ($171) per dependant per month.

"Reasonable tax rates and deductions will help taxpayers to reduce their tax burden to join in pension insurance," said a representative of a foreign insurance firm which is in the process of preparing to implement pension insurance.