Pensions need drastic reform
text size

Pensions need drastic reform

Becoming an aged society is a big challenge for Thailand, especially when it comes to welfare provided by existing pension schemes.

According to the United Nations, a country with over 10% of its population aged 60 and older is an ageing society. When this group increases to over 20%, the country becomes classified as an aged society.

In Thailand, as of 2015, 10.5 million people, or 16.2% of the 65.2 million population, were aged over 60. Siam Commercial Bank predicts Thailand will become an aged society by 2021.

To make matters worse, many entering old age lack good retirement plans, proper welfare and sufficient pension income.

Last week, Bloomberg cited an international study called the Melbourne Mercer Global Pensions Index, which indicated Thailand is at the foot of a table covering 37 retirement income systems, representing more than 63% of the world's population. The report benchmarks each country's system using more than 40 indicators.

The study suggested Thailand should introduce a minimum level of mandatory retirement savings and increase support for the poorest.

The Netherlands and Denmark have the best pensions systems in the world and took the top two slots, both earning an A grade for the level of financial security they provide in retirement. Australia came in third, with a B+ grade, while the top 10 was rounded out with Finland, Sweden, Norway, Singapore, New Zealand, Canada and Chile all on B.

This report comes as no surprise. Most of the top pension systems are in developed countries, particularly Scandinavian countries where citizens pay high income taxes.

The study should serve as a wake-up call for Thai policymakers. In fact, Thailand has various pension schemes -- a system for civil servants, a compulsory system for workers under the Social Security Fund (SSF), a voluntary system of the National Savings Fund (NSF) which covers informal workers, and voluntarily annuity insurance for retirement.

Unfortunately, pension incomes likely to be provided by these plans are insufficient, even by today's standard cost of living.

For example, the SSF's retirement income is up to 7,000 baht per month. The NSF pays varying rates depending on the amount and the period of contribution, ranging from 600 baht to 7,200 baht a month. Those eligible for the maximum retirement income of 7,200 baht must have contributed to the fund since they were 15 years old.

Another plan is the government's universal scheme for the elderly which pays 600-1,000 baht per month.

Reform of the pension systems is crucial for Thailand. Unfortunately, it is not included in the government's 20-year strategy.

It would be unrealistic for Thailand to drastically increase tax rates in the near future to support pensions. However, the country could do better by paying more attention to the issue. There should be two types of pension. The first being the existing basic mandatory or universal pension systems. The second, voluntary contribution schemes that encourage people to pay more than the legally required minimum, such as through the purchase of a pension insurance premium. This second type should be incentivised with attractive tax privileges.

Without drastic pension systems reform, Thailand as an aged society will become a mountainous burden for the state coffers.


Bangkok Post editorial column

These editorials represent Bangkok Post thoughts about current issues and situations.

Email :

Do you like the content of this article?