Thailand’s pension schemes: adequete for an ageing society?
10 December 2012
Edwin Sim comments on Thailand’s pension program.
Recently at the Human Capital Alliance co-sponsored 5th Thailand Roundtable Global Investment Forum on pensions and investments, several speakers provided us with important information I would like to share with you.
Dr Pisit Leeahtam, the Provident Fund Association of Thailand’s president explained how this country is facing an “aging society” with people living longer and families producing fewer children.
He said in 2005 about 23% of the population were under-aged youth while 10.3% were considered old-aged. The statistics further showed that by 2035 this population distribution will be completely reversed with only 14.4% classified as under-aged youth while our old-age population will reach more than 25%.
Perhaps more importantly, the following chart shows that the ratio of labor-aged workers to the old-age population has also been dramatically decreasing.
In 1960, the labor force was 11.3 times the number of old-age citizens and by 2035, the labor force is expected to be only 2.4 times the number of old-age citizens.
These dramatically decreasing ratios have alerted leading economists such as Pisit to seriously consider what Thailand must do to ensure our old-age citizens can enjoy a high-standard of life through sustainable adequate penisons during their retirement years.
Pisit said that Thailand is attempting to meet its old-age pension requirements by following the World Bank’s three pillars theory that includes: obligatory state pension insurance, obligatory private pension insurance and voluntary private pension funds.
In Thailand, voluntary private pension funds include provident funds that currently total Baht 682 million ($US22.73 billion) (net asset value). Since 1995, Thai provident funds has become increasingly popular rising from 1.36% of GDP to about 6% today.
Social Security Office (SSO)
Another conference highlight was Win Promphaet’s Social Security Fund presentation. Win, who is the Social Security Office’s head of global and real estate investment provided valuable information on the public sector’s current provision for private company retirement pensions through the Social Security System.
Currently 10.5 million private employees or 27% of the total work force are covered by Social Security. Many government employees are covered under a separate Government Pension Fund System.
To access social security coverage, employers and employees each contribute 5% of monthly incomes to the Social Security Office. 60% of the monthly income deductions goes toward the government’s pension scheme. The government also contributes 2.75% monthly.
Although most of the SSO payment goes toward the retirement scheme, SSO funds also cover sickness, serious injuries in which beneficiaries become invalid, death, children’s allowances, and unemployment.
As of today, Thailand’s social security fund has Baht 946 billion ($US30 billion) of which Baht 826 billion ($US27 billion) is reserved for pensions. The Social Security funds manages about 95% of its funds internally through 50 staff.
The following chart shows its asset allocation.