Recently, according to factual statistics, the number of employees requesting a lump-sum social insurance (“SI”) payment has strongly increased. This is the result of many factors, but the main reason is that the employee does not comprehend the provisions of SI policies as well as his/her confusion and worry about the stability of the SI policies due to changes occurring on January 01, 2018. Adding to the employee’s feeling of insecurity, several social network websites have posted incomplete and inaccurate information when comparing the benefits of those participating in commercial insurance and depositing money in a bank with those participating in SI. Therefore, on August 24, 2017, Vietnam Social Security issued Official Letter No.3758/BHXH-TT to strengthen the official message on SI policies. Accordingly, the Official Letter provides a comparison of the benefits of pension entitlement with those of life insurance (commercial insurance), depositing money in a bank and receiving a lump-sum SI payment. [Please see the full content of the Official Letter here (in Vietnamese).]

To more clearly comprehend the benefits and drawbacks of lump-sum SI payments and pensions (both benefits that an employee working for an enterprise under a labor contract is entitled to), it is necessary to compare the two options:

Conditions for being entitled to pension and lump-sum SI

To be entitled to pension, the employee shall satisfy 02 conditions:

• Age: the employee must reach the retirement age, i.e. 60 years old for men and 55 years old for women, except for special cases in which the age requirement may be lower (e.g. employees doing heavy, hazardous or dangerous jobs; employees working as coal miners in pits or being exposed to HIV/AIDS due to occupational accidents).
• SI contribution period: the employee must have participated in SI for the full 20-year term, except for special cases in which the time requirement may be shorter (e.g. female employees working full-time or part-time for State agencies in communes, wards and townships).

If the above conditions are not satisfied, the employee shall have 02 options: (1) continuing the SI contribution to satisfy the conditions for pension entitlement or (2) requesting a lump-sum SI payment.

The employee may make a request for lump-sum SI entitlement in the following cases:

• The employee has reached retirement age, but his/her SI contribution period is not sufficient (i.e. less than 20 years);
• After one year of leaving his/her job, the employee discontinues the SI contribution and his/her SI contribution period has not reached 20 years;
• The employee resides in a foreign country; or
• The employee is suffering from a life-threatening disease such as cancer, polio, liver fibrosis, leprosy, severe tuberculosis, an HIV infection that has transitioned to AIDS or other diseases as prescribed by the Ministry of Health.

When requesting a lump-sum SI payment, the employee’s benefits shall be more limited than in the case of requesting a pension entitlement

When comparing the monetary value of a pension with that of a lump-sum SI payment, the total amount per year of a pension is higher, specifically:

a. For instance, if the average monthly salary ¹ of an employee is 100, the total amount contributed by the employee (8%) and by his/her employer (14%) to the retirement and survivorship fund per year shall be [100 x 22% x 12 months] = 264.

b. In the case of a pension entitlement:

The monthly pension amount is calculated at 45% to 75% of the average monthly salary. Accordingly, the total pension per year calculated at the lowest amount is [100 x 45% x 12 months] = 540 (> 264).

Notice:

(i) Prior to January 01, 2018: The rate of 45% corresponds to 15 years of SI contribution, and for each year afterwards there shall be an addition of 2% for men and 3% for women. The maximum rate is 75%.

(ii) As of January 01, 2018: The rate of 45% shall correspond to the number of years of SI contribution, as follows:

• For male employees: to be entitled to the rate of 45%, it shall require 16 years of SI contribution (retiring in 2018); 17 years of SI contribution (retiring in 2019); 18 years of SI contribution (retiring in 2020); 19 years of SI contribution (retiring in 2021); and from 2022 onwards, it shall require 20 years of SI contribution.
• For female employees: from 2018 onwards, it shall require 15 years of SI contribution to be entitled to the rate of 45%.

For each year afterwards, there shall be an addition of 2% to the total rate. The maximum rate will be 75%.

c. In the case of a lump-sum SI entitlement: For each year of SI contribution, the employee shall be entitled to the amount equivalent to 1.5 to 2 times of the average monthly salary. Accordingly, the total lump-sum SI at the highest amount is [100 x 02 x 1 year] = 200 (< 264).

Notice:

(i) Prior to 2014: for each year of SI contribution, the employee shall be entitled to the amount equivalent to 1.5 times the average monthly salary.

(ii) From 2014 onwards: for each year of SI contribution, the employee shall be entitled to the amount equivalent to 02 times the average monthly salary.

In the event that the SI contribution period is less than one year, the SI entitlement amount is equivalent to the contributed amount, and the maximum amount is equivalent to 02 times the average monthly salary.

Upon choosing a lump-sum SI entitlement payment, the employee shall no longer be entitled to the benefits of a pension, including:

a. Funeral allowance for the family/a person who buries the employee in case the employee dies: this amount is calculated at 10 times the basic salary.

b. The survivorship allowance for an employee’s relatives in case the employee dies: depending on each case, the survivorship allowance shall be provided per month or by a lump-sum payment.

• The monthly survivorship allowance for each relative shall be 50% to 70% of the basic salary. The number of relatives entitled to monthly death allowance shall not exceed 04 persons. In case there are 02 or more employees dying, the relatives of these employees shall be entitled to 02 times the monthly survivorship amount.
• The amount of lump-sum survivorship allowance for relatives of the employee shall be calculated by the same method as the lump-sum SI (i.e. it is calculated by the years that the employee made the SI contribution):
  • Prior to 2014, for each year of the employee’s SI contribution, the entitlement amount was 1.5 times the average monthly salary used for calculating premiums.
  • From 2014 onwards, for each year of the employee’s SI contribution, the entitlement amount is 02 times the average monthly salary used for calculating premiums.

However, the lowest amount of lump-sum survivorship allowance is equivalent to 03 times the average monthly salary used for calculating premiums.

c. The SI Fund shall pay the employee’s health insurance (“HI”) and medical expenses in accordance with HI regulations.

If you have any questions or concerns about the labor regulations in Vietnam, our experienced labor and employment lawyers are always available at info@letranlaw.com.

1. The average monthly salary is calculated by taking the average of all monthly income, which is used for calculating SI premiums.