Aged society needs new provident fund
The year 2022 comes with a few challenges for Thailand that require due preparations. First among them are the economic disadvantages of the elderly which are set to grow more serious.
According to the UN World Population Prospects, Thailand is an early bird among developing nations which has now entered an aged society with about 20% of its population over 60 years old. As the number of old people increases, each elderly person can depend less on their children.
The problem needs to be highlighted that the state-provided living allowance for the elderly, in the range of 600-1,000 baht a month, is far below the poverty line. Needless to say, with such a meagre allowance, instead of enjoying life after retirement, swaths of the elderly countrywide will have a bleak future in the penultimate chapter of their life.
It is not that the government has turned a blind eye to this huge problem. In March last year, the cabinet approved the government's provident fund bill, which aims to make the namesake fund mandatory for all formal workers.
Under the bill, the proposed fund has a clear contribution structure. For instance, a worker who earns a monthly salary of 15,000 baht is required to contribute 450 baht to the fund each month, with the same amount from the employer.
In the first year she or he joins the scheme and as the contribution is progressive, by the 10th year, both sides are to provide 1,500 baht a month each. It should be noted that the contribution is separate from the social security scheme. By the time the workers reach retirement age, they can choose between a one-time or monthly pension payment. Those who have already joined a private provident fund need not apply.
The planned scheme is to cover about eight million formal workers who do not have private provident funds. But once they join the scheme, they should be able to save for the future.
Needless to say, the government means well in its attempt to introduce such a vital bill to secure a better future for workers. But those involved must be aware of the side effects as the scheme could be regarded as additional costs for workers and employers.
If the fund is like the Social Security Fund, the contributions must be mandatory and that might pose challenges when it comes into practice because after all, employers and employees are entitled to "choose" if they want to join the system. In this case, workers may choose to stay informal and not join the fund. Such a phenomenon happened in Malaysia where the number of provident fund contributors is significantly lower than that of formal workers.
As we know, informal workers have no access to some benefits like unemployment or disability compensation and that is a severe disadvantage. It's necessary that the government put in place some preventive measures in order to avoid the Malaysia experience. I recommend two measures.
Firstly, the government should connect the tax database with other information systems, ie, workers' income and identification. In this case, the government can emulate Chile's well-known mandatory individual retirement accounts system that has been praised as model for pension reform. Chile's government has invested in improving its database in connecting workers' individual income and identification with the government database, and designed features to make it easy for workers to join the scheme and contribute.
Secondly, the government should make the one-stop service for commercial registration more efficient, enabling automatic linking of commercial registration data with social security systems. The Social Security Office would then have better employment data.
Currently, as commercial registration is under the responsibility of local government organisations, it's necessary that those agencies' upgrade their information system to ensure links with the offices concerned.
System improvement is aimed at having all employees covered under the social security scheme. It's estimated that up to local seven million workers remain uncovered so far. Therefore, the agencies concerned need a better database that enables efficient cross-checking which will be even more important when the new fund is launched.
That said, Thailand is bracing for problems emerging from being an aged society with a rise in old people, many becoming have-nots.
The government provident fund is a new policy that seeks to address the problems in order that workers will have a social safety net. But the fund must be carefully crafted to make contributors see the long-term benefits outweigh the short-term burden, so they will commit to making contributions. It is imperative that the worker database as well as the cross-checking mechanism be upgraded, first and foremost to close loopholes and make payments easy, popular and for it to become a reliable safety net for the country.
Trisorn Thirachiwanon is a researcher at the Thailand Development Research Institute (TDRI). This article is based on a research project: 'Effective measures to promote financial planning of the Thai population for a society of longevity supported by the National Research Council of Thailand'. Policy analyses from the TDRI appear in the Bangkok Post on alternate Wednesdays with the Thailand Development Research Institute.
- Aged society