A review of international experience

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part of social security culture. The new scheme makes no provision for enforcing compli-
ance and is in practice almost voluntary, requiring a more client-oriented approach on the 
part of the staff.
In Tunisia, there is one scheme for each branch (or, in the case of fishing, several 
schemes for one branch). The new scheme would overlap several existing schemes, as it 
would track employees across them, and the specific occupation of workers would no 
longer be relevant past the employer’s purchase of the contribution voucher. Adoption 
of the new scheme would mean that a firm may have traditional employees who remain 
part of a traditional scheme and mobile workers who are affiliated with the new mobile 
workers scheme. Having workers at the same firm enroll in different schemes goes against 
long-accepted practice.
A third issue involves the monitoring and governance of the schemes: ensuring that 
the branch tax is collected and represents adequate financing, and keeping track of the 
vouchers to ensure that the number turned in is equal (or at least close) to the number of 
vouchers bought and that the number of vouchers bought represents the actual amount of 
work done in the branch. The price of vouchers will need to be carefully weighed. They 
should be cheap enough to be affordable for employers yet expensive enough to deter 
opportunistic purchases that would lead to inflated attribution of rights. Avoiding such an 
outcome is particularly important because the whole approach is new, meaning the signal 
flags indicating problems are not yet part of social security institutions’ cultures.
SERVAC’s work in Tunisia suggested that the best way to monitor the schemes 
would be to monitor the number of days worked rather than the number of affiliated 

members—who come and go, possibly to other, more permanent work and the schemes 
associated with such work. Each day worked carries the same pension right, so tracking 
their volume (cross-referenced by the age of the worker) is the easiest way to monitor the 
overall health of the scheme.
Prepayment appears feasible, but it requires full-scale experimentation. Developing 
countries with extensive informal sectors of mobile workers provide large natural opportu-
nities. The hesitancy of national social security institutions with regard to such a paradigm 
shift will disappear once successful pilot plans are initiated, through transnational settings 
or in developed economies in the many areas where mobile workers strive.
1.  UTAP and Social Security estimate that Tunisia had 50,000 fishers in 2001. The average fisher 
worked 150 days a year.
2.  Currency values in this chapter are given in Tunisian dinars; TD 1 = $0.6383. 
3.  These data come from the 1994 and 2001 Institut National de la Statistique Employment 
Census (the 1994 one is more detailed) and the Ministry of Agriculture’s 1997/98 Survey. As 
part-time work is massive, the volume of work days is the meaningful measure in economic 
terms. It requires crosschecking sources, as census data usually provide the numbers of people 
who declare their main activity as agriculture with their occupational rates, but groups whose 
main activity is not agriculture are also involved. The Ministry of Agriculture survey estimates 
thus indicate large employment figures (1 million family workers and 280,000 other workers) 
with only a small core of permanent workers (312,000 family workers and 50,000 other work-
ers). Occasional work remains significant even in large farms, which supposedly belong to the 
modern sector. The Ministry of Agriculture survey estimates the average number of annual 
days worked at 220 for permanent agricultural workers and 60 for other agricultural workers.
4.  These data, which include 16 percent known part-time workers (who still declare domestic 
work as their main occupation), are from the 1994 census.
SERVAC. 2003. “Extension de la couverture sociale aux marins pêcheurs, ouvriers agricoles et 
employés de maison” (“Extension of Social Security to Fishers, Small Agricultural Laborers, and 
Domestic Workers”). Restricted mission report prepared for the World Bank, Washington, DC.
—. 2006. “Stratégie d’extension de la couverture sociale au Cap Vert” (“Strategy to Expand 
the Coverage of Social Security in Cape Verde”). Restricted mission report prepared for the 
World Bank, Washington, DC.
Thaler, Richard, and Cass Sunstein. 2009. Nudge: Improving Decisions about Health, Wealth, and 
Happiness. New York: Penguin Books.

Thailand’s Matching Defi ned 
Contribution Programs for the 
Informal Sector
Mitchell Wiener
Thailand’s current pension system predominantly covers civil servants, the military, and 
formal sector workers. Informal sector workers, who represent two-thirds of the workforce, 
are covered only by a social pension. For many workers, the benefit from the social pension 
will not be sufficient to allow them to retire, avoid poverty, or maintain the same standard 
of living following retirement. To address the problem, the government of Thailand created 
two new pension programs for informal sector workers. It hopes that high participation 
rates in the new programs will eventually allow it to phase out the social pension. Unfor-
tunately, the programs are unlikely to meet the government’s stated objectives, because the 
pension programs for the informal sector are voluntary, the two programs compete with each 
other, and the programs are not designed with the savings needs of the informal sector in 
mind. Participation rates are likely to be low, the primary participants will probably be self-
employed professionals and other wealthier informal sector workers, and the programs will 
likely have little impact on coverage rates or old-age poverty. The government match will 
mostly go to people who are not poor. The programs are unlikely to replace the social pension 
as the primary source of retirement income, particularly for the elderly poor.
ver the past 10 years, governments in Asia and elsewhere have begun to focus more 
attention on the need to increase pension coverage. In many countries in Asia, the 
informal economy makes up 60–90 percent of the total workforce, and informal work-
ers are typically not covered by formal pension programs. In the past, the government’s 
strategy for increasing coverage centered on increasing the size of the formal economy. 
Confounding expectations, however, the size of the informal economy has been increasing 
in many countries, including Thailand.
Over the next 20–30 years, the population of Asia will also age dramatically, thanks 
to vastly lower birth rates and longer life expectancy throughout the region. As a result, the 
number of elderly people will increase substantially, and most of them will have worked 
in the informal sector.
Other economic forces are also increasing the vulnerability of the elderly. Smaller 
family sizes and economic development have resulted in increased urbanization and a 
breakdown in the family support system. Consequently, there is more pressure than in the 
past to develop retirement income strategies for people in the informal sector.
In 2011 and early 2012, Thailand introduced two new voluntary pension programs 
for informal sector workers. The National Savings Fund is sponsored by the Ministry of 
Finance and has a well-established legal structure, but has not yet begun. The other is 
sponsored by the Social Security Office under the Ministry of Labor and is a restructuring 

of an existing program under Article 40 of the Social Security Act. The legal structure 
of the Article 40 program is based on a single article of the law and royal decrees. Con-
sequently, many of the key features of the program can be easily changed, including the 
benefits, cost, and employer matching provision. Both are defined contribution programs 
and encourage voluntary participation by providing government matching contributions. 
However, the match under the Article 40 program can easily be stopped at any time, while 
the match under the National Savings Fund is based on law. These programs are often 
referred to as matching defined contribution programs. 
The stated purpose of these programs is to allow for the eventual phaseout or tar-
geting of the existing universal pension scheme, to improve the level of pension coverage 
and benefits, and to reduce old-age poverty. Early evidence indicates that these programs 
are not likely to meet any of these objectives. It appears that participation rates will be 
very low and that most of the participants will be self-employed professionals and other 
wealthier members of the informal sector. As of February 2012, only 600,000 of an esti-
mated 24 million informal sector workers had joined. Consequently, the programs are 
unlikely to significantly increase coverage rates, the universal social pension will remain 
the main source of retirement income for Thailand’s elderly poor, and the government 
match will largely benefit wealthier informal sector workers. Therefore, the most-vulnera-
ble will remain outside the supplemental pension systems.
Several actions should be considered to improve the overall effectiveness of the 
matching defined contribution programs. The government should be clearer about their 
purpose and their interaction with the universal social pension. The design features should 
vary depending on whether these programs are intended to replace or supplement the uni-
versal social pension and whether the social pension will remain universal or be targeted.
The existence of two competing programs is a source of confusion for informal sector 
workers. The administrators of the two programs are separately and aggressively market-
ing their programs to the same group of eligible participants. Workers do not understand 
why there are two programs, how they differ, and how they are to choose between them. 
It would be helpful if the government gave guidance to potential participants about the 
features of the two programs and how to select between them rather than allowing the 
sponsors to separately and competitively market the two programs.
The government should also reconsider some of the features of the two programs, 
which appear to be designed with the needs of the formal sector in mind. They do not 
take into account the savings methods, needs, or priorities of the informal sector, particu-
larly workers in the bottom four income deciles. Greater withdrawal flexibility is needed if 
the programs are to achieve higher coverage rates.
Pension Programs for Formal Sector Workers
Before the introduction of the new voluntary pension programs for the informal sector, 
the government of Thailand already sponsored numerous retirement programs. For the 
formal sector, these include the Old Age Pension under the Social Security Office, the 
Government Pension Fund, voluntary provident funds, and retirement mutual funds. The 
informal sector is eligible for retirement mutual funds and for the universal social pension 
under the Old Age Act.

The Old Age Pension program is a mandatory defined benefit program covering for-
mal sector workers. The retirement age is 55, and a minimum of 15 years of contributions 
is required to be eligible for a pension benefit. The program began in 1999, so the first 
pensions will be paid in 2014. The program provides a benefit of 20 percent of final aver-
age pay for workers retiring with 15 years of contributions and an additional 1.5 percent 
of final average pay for each year of contributions in excess of 15.
Civil servants are eligible for both a defined benefit pension payable from the state 
budget and a defined contribution program administered by the Government Pension 
Fund. From the defined benefit program, civil servants receive a benefit equal to 2 percent 
of their final five-year average pay for each year of service, up to a maximum of 70 per-
cent. Payouts at retirement can be received as an annuity or as a lump sum. In addition, a 
contribution of 8 percent is made to the Government Pension Fund each year. The gov-
ernment contributes 5 percent and civil servants contribute 3 percent. The government 
contribution to the Government Pension Fund is reduced by 2 percent if workers choose 
to take the defined benefit plan payout as a lump sum.
Voluntary provident funds are established by employers for the benefit of their 
employees. Most of these funds were established by state-owned entities and large corpo-
rations that are listed on the Thai stock exchange. These programs require both employer 
and employee contributions, and the employer contribution must be equal to or greater 
than the employee’s contribution. Employees can receive the accumulated funds at retire-
ment (age 55) or earlier employment termination.
Retirement mutual funds are voluntary defined contribution programs that are 
available to both formal and informal sector workers. However, the structure of the pro-
grams is inappropriate for workers with low or irregular income or in vulnerable employ-
ment. Retirement mutual funds are offered and managed by mutual fund companies; 
they must offer participants a choice of funds with varying risk profiles. They offer tax 
privileges but only under stringent conditions. Units must be purchased continuously 
until age 55, except under certain limited conditions, and there is a minimum annual 
contribution requirement. Consequently, these programs have attracted limited interest 
and are designed for wealthy individuals.
The government also sponsors a universal social pension under the Old Age Act. 
Before 2008, the program was targeted, and benefits were limited to B 200 a month. In 
2008, the program became universal, and the benefit was increased to B 500 a month. 
The benefit is payable to everyone age 60 and older who is not eligible for any of the 
mandatory social insurance programs (primarily the Old Age Pension and Government 
Pension Fund programs). 
Benefits were increased at the beginning of 2012. Monthly payments now vary by 
age, with people age 60–69 receiving B 600, people age 70–79 receiving B 700, people age 
80–89 receiving B 800, and people age 90 and older receiving B 1,000.
Pension Programs for Informal Sector Workers
The government recently introduced two new voluntary pension programs, the National 
Savings Fund (NSF) and a modified program under Article 40 of the Social Security Act. 
There are two options under the Article 40 program. Option 1 provides insurance benefits 

and no pension savings. Option 2 provides the same insurance benefits as Option 1, plus 
a pension savings program. Only informal sector workers are eligible for these programs, 
and workers cannot participate in both NSF and Article 40, Option 2, but must choose 
their desired program. Both are matching defined contribution programs, with voluntary 
worker contributions matched by the government.
The purpose of the NSF program is to provide a voluntary pension savings program for the 
informal sector. The National Savings Fund Act was enacted in May 2011 and was scheduled 
to go into effect May 8, 2012. This starting date has now been delayed, however, because 
the government still needs to issue several clarifying regulations. This section describes the 
structure of the NSF program and outlines the areas of the law that need clarification.
Types of Accounts
The NSF, a new public institution, will maintain three types of accounts—individual 
accounts, pension accounts, and a central account. The individual account is used to track 
individual account balances during the participant’s working career. At retirement age (age 
60), the balance in the individual account is transferred to a pension account. The pen-
sion account is used to make pension payments to participants until age 80. The central 
account belongs to the NSF, not to individual participants. It is used to make pension 
payments after age 80 and to back investment rate of return guarantees.
Governance Structure
The NSF will be responsible for investment management and all administrative functions 
for the new pension system. It will also guarantee lifetime pensions for members following 
their retirement. The governing body of the NSF, the National Savings Fund Committee, 
is responsible for overseeing fund activities.
The NSF is led by a secretary-general and a director of investments hired by the 
NSF Committee. The appointment of the secretary-general is subject to the approval of 
the minister of finance. The committee and its investment subcommittee are responsible 
for setting investment policy, determining the methods for making contributions and 
withdrawals, and hiring fund managers.
People age 15–60 who are not covered by any other pension fund that receives manda-
tory contributions from the state or employers are eligible. The eligible group comprises 
the informal sector, regardless of income level. At this time, the program supplements the 
universal Old Age Pension under the Old Age Act.
Workers may make contributions whenever they wish; there is no requirement for regular 
monthly contributions. However, the minimum contribution is B 50, and no more than 
B 13,200 may be contributed in any one calendar year. Contributions are placed in each 
participant’s individual account.

The government matches workers’ contributions. The maximum monthly match 
increases with the age of the contributor, rising from 50 percent for people age 15–30 
(maximum B 600); to 80 percent for people age 30–50 (maximum B 960); to 100 percent 
for people age 50–60 (maximum B 1,200). The rationale articulated for the increasing 
match is that people who are older at the time the program begins have less time to save 
for retirement than people who are younger. This rationale is persuasive for the existing 
group of older workers at the time the program begins; it may not be as logical for new 
workforce entrants, who may choose to delay the start of their savings program in order 
to wait for the higher match. Generally, it is better to encourage workers to start saving as 
early as possible, as contributions made at younger ages earn interest for a longer period 
of time.
The law states that at least 60 percent of the assets must be invested in low-risk securi-
ties. The basic structure for the investment process will follow the rules applicable to the 
Government Pension Fund and the Social Security Office’s Old Age Pension program. 
According to the government pension fund legislation and regulations, low-risk assets 
include cash, bank deposits, and bank certificates of deposit; government bonds, trea-
sury bills, and Bank of Thailand bonds; debt instruments guaranteed by the Ministry of 
Finance; bank debt instruments; and highly rated corporate debt.
The other 40 percent can be invested in other permitted instruments, such as equi-
ties (maximum 10 percent in any one company and 20 percent of assets in total), overseas 
investments (maximum 10 percent of assets), real estate, and lower-rated bonds. The gov-
ernment plans to initially use an investment mix of 80 percent low-risk and 20 percent 
other instruments in order to reduce volatility in rates of return.
There is also an investment rate of return guarantee in the NSF law. If the account 
balance at retirement is less than it would have been if the rate of return had been equal 
to the average return on 12-month deposits at the government savings bank, the Bank of 
Agriculture, agricultural cooperatives, and the five largest commercial banks, the account 
balance will be topped up using funds from the NSF’s central account.
The law states that at least two domestic institutions or people must be hired for 
domestic investments. It sets no limit on the number of overseas investment managers. All 
investment managers are required to be properly licensed and supervised in Thailand or 
their country of domicile. Although not directly stated, the law implies that the NSF itself 
is not permitted to manage individual or pension account assets.
People who retire at age 60 will either receive a monthly pension for life or a living allow-
ance, depending on the size of the account balance at retirement. At age 60, a participant’s 
assets are moved from his or her individual account to a pension account. Assets in the 
pension account are then converted into a pension payable until age 80.
If the calculated pension is greater than the minimum pension amount specified in 
ministry regulations, the retiree is eligible for a lifetime annuity. Payments are made from 
the pension account until age 80. If the participant dies before reaching age 80, the bal-
ance in the account is paid to the participant’s designated beneficiary. If the participant 

lives beyond age 80, the remaining payments until death are paid from the central account 
maintained by the NSF.
If the calculated pension amount is less than the minimum pension, a “living 
allowance” is paid instead of a lifetime pension. The living allowance is equal to the 
minimum pension. It is paid from the pension account each month until the account 
is exhausted. For retirees who receive the living allowance, benefit payments stop when 
the pension account is exhausted; there is no lifetime pension guarantee. The number of 
participants who are eligible for a lifetime annuity, therefore, will depend on the proce-
dures adopted by the government for converting the balance in the individual account 
at retirement into a pension and the level at which the Ministry of Finance sets the 
minimum pension. These two decisions will have a significant impact on the financial 
solvency of the NSF.
There are two situations in which payments are made before age 60. If a participant 
dies before age 60, the balance in the individual account is paid out in a lump sum to the 
designated beneficiaries. If an individual becomes disabled before age 60, he or she can 
choose to receive all or part of the balance in the individual account as a lump sum. If 
any funds remain in the individual account after this distribution, they are paid out as a 
lifetime pension or living allowance starting at age 60.
In-Service Withdrawals
The law does not make provision for in-service withdrawals by members, except for peo-
ple who become disabled or die. Members can receive a payout before age 60 only if they 
opt out of the fund. In this case, they receive a lump sum equal to their own contributions 
with investment income; they forfeit the government contributions and its investment 
income in their individual accounts. Given this penalty, there is very limited liquidity in 
the program to assist members with any type of financial emergency.
The NSF is a fully tax-exempt system. Participant contributions are tax deductible, the 
government’s contributions are not taxable income to participants, investment earnings 
are not taxed when earned, and benefit payouts are not taxed. This type of pension is often 
referred to as an EEE system, because contributions, investment earnings, and payouts are 
all exempt from taxation.
The law indicates that fees of investment managers shall be in accordance with the crite-
ria, methods, and conditions specified by ministerial regulation. All of the costs of NSF 
operations, marketing, enrollment, and collection of contributions will be paid from the 
state budget.
Contribution Collection
The NSF is permitted to collect contributions directly or to outsource this function. The 
community offices of the Ministry of Interior will be responsible for enrolling mem-
bers in the system and collecting the first contribution at the time of initial enrollment. 

Afterward, contributions can be made through the state savings bank, community offices, 
or the post office.
Members are responsible for visiting these locations to enroll and make contribu-
tions. Active marketing by agents is not planned. The government will make trips to each 
region to educate and promote the new program. However, citizens will be expected to go 
to appropriate registration centers to enroll in the program and make contributions.
In addition to creating the NSF, Thailand modified and added another option to an exist-
ing but little used program for informal sector workers under Article 40 of the Social 
Security Act. This change was implemented by the Social Security Office at about the 
same time as the enactment of the NSF law. The change modifies the insurance benefits 
available, introduces an option for an old-age savings program, reduces the price, and 
introduces government cost sharing. The existence of this scheme continues a long his-
tory of competition by pension programs established and supervised by the Ministry of 
Finance and programs established and supervised by the Ministry of Labor. It reflects the 
lack of a national pension policy in Thailand.
Under the provisions in effect before May 1, 2011, workers who were not eligible 
for pensions from the Social Security Office or the Government Pension Fund could 
voluntarily participate in Social Security Office programs that provide death, maternity, 
and disability benefits at a cost of B 280 a month. Members paid the entire premium. 
Participation in this program was always minimal. As of December 31, 2010, it had 
enrolled only 47 participants, compared with 8.8 million mandatory Social Security 
Office members.
Under the modified program, two benefit packages are offered under Article 40, 
one of which includes an optional pension savings benefit, and the government now helps 
finance the cost of the benefits. Option 1 includes insurance but not pension benefits. 
Workers receive disability, sickness, and death benefits. Workers electing this option con-
tribute B 70, and the government contributes B 30 a month.
Option 2 includes the same insurance benefits as Option 1 plus an old-age savings 
benefit. For this option, the worker contributes B 100 a month, and the government B 50 
a month. The additional B 50 a month goes into the old-age savings program, which pays 
a lump-sum benefit at age 60.
Only limited information about this program can be given, because details are not 
included in the Social Security Office law, and the royal decree contains only limited 
information about the program. Moreover, the benefits, cost, and government match are 
subject to change at any time.
It is difficult to estimate the fiscal impact of the two new voluntary programs. The cost to 
the government will depend on the number of people who choose to join the programs, 
the age of the participants who join, the amount they choose to contribute, and the fre-
quency of contributions. Both the NSF and the Social Security Office estimate that only 

about 10 percent of eligible workers will join their programs and that they will likely be 
wealthier members of the informal sector. 
Under the Article 40 program, people who elect Option 2 will contribute B 100 a 
month, and the government will contribute B 50 a month. Of this amount, B 50 will go 
into the pension savings scheme, with workers contributing B 30, and the government con-
tributing B 20; Option 2 provides a 67 percent match. However, in order to get this match, 
the worker must agree to purchase both insurance and pension benefits; the pension option 
is not available alone. Option 2 also suffers from legal uncertainty, as the government has 
not guaranteed to continue the match every year.
The cost to the government for this scheme will depend on the number of partici-
pants who choose to join Option 2. The government cost for pensions for each partici-
pant will be B 240 a year (B 20 a month for 12 months), assuming participants contribute 
every month. As of February 2012, about 600,000 people had joined this program. If all 
of them remain in the program, the cost to the government would be B 144 million a year. 
If 10 percent of eligible participants join, there would be about 2.4 million members; the 
cost to the government would be B 576 million.
Estimates for the NSF are more difficult, as the government match varies by age and 
by the amount the participant chooses to contribute. The maximum match ranges from 
B 600 to B 1,200 a year, depending on the participant’s age.
If 10 percent of eligible participants joined (2.4 million members), the maximum 
cost to the government would be B 2.9 billion, if all 2.4 million members received the 
maximum government match of B 1,200 a year. The actual cost to the government would 
be less, because not everyone will be eligible for a 100 percent match. If the average match 
is B 800 a month, for example, the cost to the government would be about B 1.9 billion.
Most informal sector workers who want to save for retirement will probably choose 
the NSF over Article 40 Option 2, because the NSF program provides higher levels of 
government contributions and has a much stronger legal basis. People who have already 
joined Option 2 will also be able to switch to the NSF program on January 1, 2013, the 
first date the switching option will be available.
Program Summary
Tables 14.1 and 14.2 summarize the characteristics and intended coverage of the existing 
and new Thai pension programs. Table 14.1 shows that Thailand now has seven separate 
pension programs covering different groups of workers. Of these, only one, the retire-
ment mutual funds, covers both the formal and informal sectors. However, the retirement 
mutual funds are designed for people who are willing and able to make regular contribu-
tions at a minimum level for an extended period of time, effectively excluding most infor-
mal sector workers from participation.
Table 14.2 summarizes the basic features of each of the seven retirement programs. 
The designs of the various programs differ substantially along a number of key character-
istics—the eligible group; the program sponsor; whether the programs are mandatory or 
voluntary; whether programs are defined benefit or defined contribution; how the pro-
gram costs are allocated among workers, employers, and the government; and the govern-
ment institution responsible for supervision and control.

TABLE 14.1  Eligibility of formal and informal sector workers for pension programs in Thailand
Formal sector
Informal sector
Old Age Pension 
Government Pension Fund 
Voluntary provident funds 
Retirement mutual funds 
Old Age Act (social pension) 
National Savings Fund 
Social Security Act, Article 40 
TABLE 14.2  Features of pension programs in Thailand
or voluntary
Old Age 
Defi ned 
benefi t
Ministry of 
ment Pen-
sion Fund
Defi ned 
benefi t/
defi ned
Ministry of 
if employer 
listed on 
stock ex-
Defi ned 
Defi ned 
Old Age Act
Defi ned 
benefi t
Ministry of 
Human De-
Defi ned 
Ministry of 
Social Se-
curity Act, 
Article 40, 
Option 2 
Defi ned 
Ministry of 

Analysis and Recommendations
Thailand’s pension programs are highly fragmented, at least in part because there is no 
national pension policy and responsibility for oversight of its pension programs is spread 
across multiple ministries. The programs sponsored and supervised by the Ministry of 
Finance openly compete with those sponsored and supervised by the Ministry of Labor. 
Neither organization is willing to cede control of their programs to the other or to a new 
national pension supervision agency. Consequently, when the Ministry of Finance created 
the NSF, the reaction of the Ministry of Labor was to enhance existing but long dormant 
programs for the informal sector under Article 40. As a result, Thailand now has seven 
separate pension programs. 
It would make sense to try to consolidate the number of pension programs. Select-
ing one program for each retirement pillar—social pension (Pillar 0), mandatory defined 
benefit social security (Pillar 1), mandatory defined contribution (Pillar 2), and voluntary 
defined contribution (Pillar 3)—would reduce the number of programs from seven to 
four. As part of this process, civil servants and formal sector workers could participate in 
the same programs. Creating a separate pension supervision agency would help unify and 
harmonize the rules and regulations governing the various programs.
The new voluntary programs illustrate the problems that arise when programs are 
fragmented and there is a lack of a strategic vision. For example, the design of the vol-
untary programs should vary depending on whether the social pension for the informal 
sector will be universal or targeted and whether it is intended to be permanent or tem-
porary. There is also a lack of clarity about the respective roles of the NSF and Article 40 
programs. There has been limited communication about why two programs are needed or 
what criteria informal sector workers should use in choosing.
The NSF and Article 40 programs are currently designed to attract self-employed 
professionals and other high-paid members of the informal sector. This strategy may be 
appropriate if the two programs are intended to supplement, and not replace, the social 
pension. If the social pension remains universal and is sufficient to prevent poverty, then 
informal sector workers who want to save more for retirement can use either of these two 
voluntary pension programs to accumulate additional retirement savings. If, however, the 
social pension will target only the poor, the remainder of the informal sector will need to 
use these programs to meet all their pension savings needs. In this case, the amounts that 
would need to be accumulated would be much higher.
Several changes should be considered if the goal is to have a broader cross-section 
of the informal sector participate in the voluntary pension programs. The legal structure 
of the Article 40 programs should be strengthened, and the government match should be 
codified. The law creates the program, but all important details are found in royal decrees. 
As a result, there is little assurance that the programs will remain in place in their current 
form or that the government will continue to contribute.
The pricing of the Article 40 programs might also benefit from additional analysis. 
The monthly total cost of the insurance programs under Article 40 has been reduced from 
B 280 to B 100. Although the benefit package under the reformed scheme is less gener-
ous, it is not clear that there has been rigorous actuarial analysis to support the reformed 
pricing scheme.

The NSF law is extensive and carefully outlines the legal structure and benefits of 
the program. Several provisions could be reexamined, however, to enhance the attractive-
ness of the program to a wider group of potential participants.
• Increase withdrawal flexibility before retirement age. It would be helpful to add 
more flexibility to withdraw contributions before retirement without severe penalty. 
Most savings by the informal sector are for consumption smoothing and medium-
term needs, such as weddings, funerals, household purchases, and medical expenses. 
The preferred form of long-term informal sector retirement savings is in the form of 
hard assets—gold, jewelry, land, and housing. The NSF program requires members 
to quit in order to withdraw money before retirement, forfeiting all government 
contributions and the investment income on those contributions.
• Do more to encourage contributions. It is questionable whether passive contri-
bution collection methods will be effective for the informal sector. Without more 
proactive collection mechanisms, it is likely workers will not contribute regularly 
and there may be many inactive accounts. Many informal sector workers have 
limited disposable income and often borrow money informally to smooth con-
sumption spending. Long-term savings is likely to have lower priority than other 
needs, particularly if there is no active encouragement to contribute regularly. 
For example, microfinance institutions often use weekly community meetings or 
house-to-house collection of savings to encourage regular participation. 
• Reduce fees. The NSF law allows the criteria, methods, and conditions for setting 
fees to be specified by ministerial regulation and the level of fees to be set by the 
National Savings Fund Committee. The ministerial regulations, when issued, will 
hopefully offer guidance on the process the committee should follow to establish 
fees and require that the fees be related to actual administrative expenses and that 
investment expenses vary with the type of assets under management. Programs for 
the informal sector that rely on collecting small amounts of money from a large 
number of participants must have efficient and centralized administration. Pro-
cesses should be highly automated to keep expenses low, especially as most con-
tributions will be small and contribution payments will likely be irregular. There 
must also be efficient ways of getting contributions from multiple collection points, 
sending contributions to a central administrative organization for processing, send-
ing contributions to fund managers, and tracking individual account balances. 
• Develop more effective ways of communicating with potential contributors. 
Most low-income workers have only a primary education and may know little or 
nothing about pensions or finance. The benefits of retirement savings must be 
carefully explained. Doing so requires a strong ongoing public education effort 
regarding financial and savings principles and how participation in the govern-
ment’s voluntary pension programs can help reduce the chances of falling into 
poverty in old age.
• Anticipate and measure needed NSF pension liabilities. The NSF will have a 
substantial liability for payment of lifetime pensions to people who live past age 
80. The size of the liability will depend on the assumptions and methods used to 
calculate the initial pension amount, the manner in which pensions are indexed 

following retirement (if at all), and the manner in which the rate of return on pen-
sion accounts is allocated between the central account and the participant’s pension 
account. It will also heavily depend on the size of the minimum pension and the 
number of people who qualify for lifetime pensions as opposed to a living allow-
ance. As life expectancy will continue to increase, a substantial number of future 
pensioners may live beyond age 80. The NSF should hold a central account liability 
to secure these expected future payments. Sophisticated actuarial projections are 
needed to determine optimal system design and calculate required reserves.
• Clarify individual account recordkeeping methodology. More clarity is needed 
regarding the method of allocating investment income to participants. It is unclear 
whether account balances will be updated daily or investment income declared 
on a periodic basis. The NSF Act requires investment income to be declared at 
least once a year. International best practice is to allocate investment income daily 
by marking assets to market, calculating the fund’s net asset value and the number 
of units held by each participant, and updating individual accounts.
Even a well-designed program may not attract the expected level of contributions, 
for valid reasons. Saving for retirement is usually not the primary concern of informal 
sector workers, who tend to value short-term savings, microborrowing, health insurance, 
insurance against natural disasters, and protection against crop failure or livestock loss 
more than savings for retirement.
For people who are able to save, there may be better investment opportunities than 
contributing to a voluntary pension program. For example, purchasing land or livestock 
or using savings for a child’s education may produce higher rates of return than investing 
in market securities. Land and livestock can be used to generate current income and can 
be liquidated to provide retirement funds. An educated child can increase family income 
and provide parents with a source of support in retirement.
The pension plans for informal workers should be viewed as one component of an 
overall program that recognizes their legitimate short- and long-term needs. A better strategy 
than the one the government has adopted might be to provide such workers with a package 
of needed benefits rather than establishing free-standing voluntary pension programs.
1.  Currency values in this chapter are given in Thai baht; B 1 = $0.0325.
Jitsuchon, Somchai. 2011. Thailand Development Report: Protecting Thailand’s Aging Population
Bangkok: Thailand Development Research Institute.
Park, Donghyun, ed. 2011. Pension Systems and Old-Age Income Support in East and Southeast Asia
Manila: Asian Development Bank.
Wiener, Mitchell. 2010. “National Savings Fund Draft Law Recommendations.” Unpublished, 
Asian Development Bank, Manila.
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