BANGKOK, Thailand (ILO news) – Thailand’s retirement pension system requires reform if it is to meet the needs of an ageing population in years to come, according to a new United Nations report. The introduction of any new pension schemes or changes to allow lump sum withdrawals by members are also strongly discouraged in view of the additional challenges they would create.
Thailand Social Protection Diagnostic Review: Review of the pension system in Thailand provides an extensive analysis of the current retirement provision framework and recommendations for its future evolution. It has been carried out by the UN Joint Programme on Social Protection for All in Thailand under the technical leadership of the International Labour Organization (ILO).
The report recognises that the current system provides a good foundation for an adequate and sustainable retirement system in the medium and long term. However, in common with many systems around the world it faces challenges from an ageing population and changing labour markets.
Reform measures would help the scheme meet international good practice and population expectations by providing higher benefits on a more sustainable basis. Recommendations include an immediate increase in the level of the existing Old Age Allowance, a gradual rise in contribution rates and retirement age, an increase in the earnings cap as well as a reduction in the number of years needed for retirement income eligibility from 15 years to 5 years.
The report also highlights how informal workers and those currently not in the system can be included. This will help reduce poverty and inequality as well as provide greater equity in the labour market and better protection for individuals and their families.
“The central proposal is to develop a multi-tier system that moves away from fragmented this would create a range of new difficulties. arrangements and towards multi-layered schemes that can better adapt to the changes throughout workers’ lives,” said Gita Sabharwal, UN Resident Coordinator in Thailand. “In doing so it will be building a more resilient, equitable and sustainable social protection system, including pensions. This is essential to ensure a human-centred recovery.”
The launch of the report follows the announcement by the government in March 2021 of plans for a new National Pension Fund which when introduced would require employees and employers to pay additional contributions towards future pension entitlements as well as recent discussions around allowing a greater number of beneficiaries to take a lump sum and not pension benefit, earlier payment of benefits and members using their benefits as loan collateral.
The report argues that the launch of a new scheme would be highly unlikely to solve existing problems and would create a range of new difficulties.
“Countries that have introduced new schemes to replace part or all of the existing Social Security provision have seen very disappointing results,” said Graeme Buckley, ILO Country Director for Thailand, Lao PDR and Cambodia. “Reform to the current social security system is necessary, but we do not recommend introducing a new scheme as it will divert resources from other schemes and take at least 30 years for participants to build up adequate benefits.”
Calls for members of the pension scheme to be allowed to withdraw funds on a lump sum basis or used as loan collateral to help alleviate financial pressures brought about by the COVID-19 pandemic should also be strongly resisted, Mr Buckley explained.
“A major strength of the existing scheme is the focus on retirement income. It is vital that this element of provision is maintained as it responds to the needs of beneficiaries. In the limited number of countries where benefits can be taken in lump sum form, most beneficiaries spend all their benefit within the first 5 to 10 years and then call on the Government for additional support. It will cause a massive problem for the beneficiaries, scheme and country alike,” he said.
The Thailand Social Protection Diagnostic Review was produced with support from the Joint SDG Fund.