The introduction of a private pension system for companies in Vietnam is being held up by a battle over which ministry will be able to control it.
Buy-side executives in Hanoi say both the Ministry of Labour and Social Affairs (MoLSA) and the Ministry of Finance (MoF) have circulated draft laws for the introduction of private pension schemes. The drafts are similar in most respects, but differ with regard to tax incentives, licensing and supervision, according to individuals who have seen the drafts.
“I hope we’ll see draft legislation introduced before the end of the year,” said Avinash Satwalekar, chief executive at Ho Chi Minh City-based Vietcombank Fund Management, in which Franklin Templeton holds a 49% stake. “That’s what we’ve been told [by the ministries].”
The introduction of corporate pensions has been under discussion for over two years, and while Prime Minister Nguyen Tan Dung has asked the ministries to provide a consolidated proposal this year, the government has a track record of missing such deadlines.
The issues said to be holding up a government proposal entail both a naked power-play between the ministries and a fundamental philosophical difference.
The labour ministry is keen to provide coverage to factory floor workers and middle management, and wants the tax authority to provide a more generous incentive to companies that sign up workers. The finance ministry’s priority is for companies to use pensions to provide incentives to senior managers and, as the overseer of the tax authority, wishes to limit the giveaways.
In both cases, however, the ministries are keen to shift the burden of funding retirees to the private sector, and the workers themselves. The spur for reform has been awareness that the Vnd300,000 billion ($13.3 billion) Vietnam Social Security’s social insurance funds, a government scheme for civil servants, will be depleted by 2030.
“They need to make a harder push,” said Le Thi Le hang, CEO at SSI Asset Management in Hanoi. “They know the pension reserve will be spent, so they need to start [private-sector schemes] now.”
Early discussions regarding the introduction of private schemes had also envisaged a reform of the VSS, although industry players say this may go untouched, particularly if the MoF wins the pensions turf war.