Society problems

Aged society needs a new provident fund

Elderly people wait near Phra Nakhon district in early January to register for benefits. Last year, the cabinet approved a government pension fund bill that will open the door for informal workers to pay monthly contributions. (Photo: Wichan Charoenkiatpakul)

The year 2022 comes with some challenges for Thailand that require proper preparation. Foremost among these are the economic disadvantages of the elderly, which will worsen.

According to the United Nations World Population Prospects, Thailand is an early bird among developing countries that has now entered an aging society with around 20% of its population over the age of 60. As the number of older people increases, every older person can depend less on their children.

The problem should be pointed out that the subsistence allowance provided by the state for the elderly, in the range of 600 to 1,000 baht per month, is well below the poverty line. Needless to say, with such a meager allowance, instead of enjoying life after retirement, swathes of senior citizens across the country will face a bleak future in the penultimate chapter of their lives.

It is not that the government has turned a blind eye to this huge problem. In March last year, the cabinet approved the Government Provident Fund Bill, which seeks to make the namesake fund compulsory for all formal workers.

Under the bill, the proposed fund has a clear contribution structure. For example, 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, he or she joins the scheme and, as the contribution is progressive, in the 10th year, both parties must contribute 1,500 baht per month each. Note that the contribution is separate from the social security scheme. When workers reach retirement age, they can choose between a single or monthly pension payment. Those who have already joined a private provident fund do not need to apply for it.

The planned scheme is to cover around eight million formal workers who do not have private provident funds. But once they join the plan, they should be able to save for the future.

Needless to say, the government has good intentions in its attempt to introduce such a vital piece of legislation to ensure a better future for workers. But those affected should be aware of the side effects as the scheme could be seen as additional costs for workers and employers.

If the fund is like the Social Security Fund, contributions should be compulsory and this could cause problems in putting it into practice because after all, employers and employees have the right to “choose” whether they want to join the system. In this case, workers can choose to remain informal and not join the fund. Such a phenomenon has occurred in Malaysia where the number of contributors to provident funds is significantly lower than that of formal workers.

As we know, informal workers do not have access to certain benefits such as unemployment or disability compensation, which is a serious disadvantage. The government needs to put in place preventive measures to avoid the Malaysian experience. I recommend two measures.

First, the government should connect the tax database with other information systems, i.e. income and worker identification. In this case, the government can emulate the well-known Chilean system of mandatory individual retirement accounts that has been hailed as a model for pension reform. The Chilean government has invested in improving its database by connecting individual income and worker identification with the government database, and has designed features to facilitate and contribute to worker enrollment in the scheme.

Second, the government should make the one-stop service for business registration more efficient, enabling the automatic linking of business registration data with social security systems. The Social Security Office would then have better employment data.

Currently, commercial registration being the responsibility of local authorities, it is necessary for these agencies to modernize their information system to ensure links with the administrations concerned.

The improvement of the system aims to ensure that all employees are covered by the social security system. It is estimated that up to seven million local workers are not covered so far. Therefore, the agencies involved need a better database for effective cross-checking, which will be all the more important when the new fund is launched.

That said, Thailand is preparing for problems emerging from an aging society with an increase in the number of elderly people, many of whom are becoming destitute.

The government provident fund is a new policy that seeks to solve problems so that workers have a social safety net. But the fund must be carefully designed so that contributors see that the long-term benefits outweigh the short-term burden, so that 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 fill the gaps and make payments easy, popular and become a reliable safety net for the country.