Thailand’s aging society needs new future funding

The year 2022 brings some challenges for Thailand that require proper preparation. The first of these is the economic hardship of the elderly which is going to be more serious.

According to the UN World Population Prospects, Thailand is one of the earliest developing countries in the developing world to have entered an adult society with about 20% of its population over 60 years of age. As the number of older people increases, each older person can become less dependent on their children.

The problem needs to be highlighted that the state-provided living allowance for the elderly, 600-1,000 baht per month, is well below the poverty line.

Needless to say, with such a meager allowance, instead of enjoying life after retirement, there will be a dark future in the last chapter of the lives of the elderly across the country.

Not that the government has turned a blind eye to this huge problem. In March last year, the cabinet approved the government’s future funding bill, which aims to make the naming fund mandatory for all formal employees.

Under the bill, the proposed fund has a clear contribution structure. For example, an employee earning a monthly salary of 15,000 baht must contribute 450 baht to the fund with the same amount from the employer per month.

In the first year he or she joins the project and as the contribution progresses, within the 10th year, both parties must pay 1,500 baht per month. It should be noted that the contribution is separate from the social security scheme. When workers reach retirement age, they can choose between paying a lump sum or a monthly pension. Those who have already joined a private future fund do not need to apply.

The planned project will cover about 8 million formal workers who do not have personal future funding. But once they join the project, they will be able to save for the future.

Needless to say, the government is working hard to bring in such an important bill to secure a better future for the workers. But those involved must be aware of the side effects as the scheme can be considered as an additional expense for workers and employers.

If the fund is like a Social Security fund, contributions must be mandatory and can create challenges when it comes to reality because, above all, employers and employees have the right to “pick” if they want to join the system. In this case, employees may choose to stay informal and not join the fund. There has been an incident in Malaysia where the number of contributors to the Provident Fund has been significantly lower than the official staff.

We know that informal workers do not have access to certain benefits, such as unemployment or disability compensation, and this is a serious problem. The government needs to take some preventive measures to avoid the Malaysian experience. I recommend two measures.

First, the government should link tax databases to other information systems, such as workers’ income and identification. In this case, the government could emulate Chile’s well-known compulsory personal retirement account system, which has been hailed as a model for pension reform. The Chilean government has invested in improving its database to connect workers to personal income and identification with government databases, and has designed features to make it easier for workers to join and contribute to the project.

Second, 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 will then have better employment information.

Currently, since commercial registration is the responsibility of local government agencies, they need to upgrade their information systems to ensure a link with the relevant departments.

The goal of improving the system is to bring all employees under the social security scheme. It is estimated that seven million local workers are still exposed. Therefore, the concerned agencies need a good database which enables efficient crosschecking which will be more important when launching new funds.

That said, Thailand is trying to solve the problem that has arisen as a result of the growing number of elderly people from an older society, which many do not have.

The government future fund is a new policy that seeks to solve the problem of creating a social safety net for workers. But the fund must be carefully created so that the long-term benefits of the contributors go beyond the short-term burden, so they will be committed to the contribution.

The staff database and cross-checking system must be upgraded, first and foremost to stop errors and make payments easy, popular and a reliable security net for the country.

Article by Trisorn Thirachivanan

This article is based on a research project: ‘Effective steps to promote the Thai population’s financial planning for longevity society, supported by the National Research Council of Thailand’.

First published: at Bangkok Post 2 MAR 2022

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