Vietnam's first private and voluntary pension plan player, Dragon Capital, plans a full-scale launch of its offerings later this year as it seeks to claim a slice of a budding industry aimed at supporting a rapidly ageing society.
"After building the backend of our scheme, we reckon that we should be able to go to market aggressively by the fourth quarter of this year,” Dominic Scriven, chairman of Dragon Capital, told AsianInvestor.
And while formidable challenges remain, the company is confident it will be able to find solutions along the way.
The Hanoi-headquartered company has about $5 billion in assets under management, making it one of the largest asset managers in Vietnam’s capital market.
Established in 1994, Dragon Capital offers asset management (with the licence to offer a provident fund plan) and discretionary portfolio services.
It announced the launch of Vietnam's first voluntary defined contribution retirement pension program in April 2021. The programme combines contributions from employer and employee in one of three investment funds based on the age and risk profile of each participant.
The scheme, which invests only in local public bonds and public equities, had a soft launch in 2022 as the company continued to build the processes and systems around the plan. A pension app is also expected to be unveiled later this year.
Dragon Capital aims to market the scheme to both corporate entities and to individuals.
The scheme is among the first of its kind in the country, and is meant to reduce the increasingly heavy burden on the state-run social insurance fund called Vietnam Social Security (VSS).
NEED FOR MULTIPLE OPTIONS
Vietnam is one of the fastest ageing societies in the world. People aged 60 and above accounted for nearly 12% of the population in 2019, which will rise to 25% by 2050 according to the United Nations.
By 2036, the country will also move from an ageing society to an aged society.
Yet VSS faces massive challenges in expanding social security coverage: Only 38% of Vietnam’s labour force (about 17.5 million) is registered for social insurance, and only about 30% of the elderly population has access to social security, according to local media reports.
Despite the urgency to develop a more robust system, Vietnam’s pensions industry is still very much in its nascent stages.
“It’s quite difficult to create institutions because you can’t just regulate them into existence. It’s about [having the] institutional knowledge, the confidence in the system, the support of the government, etc.,” Scriven said.
BUILDING THE PENSION ECOSYSTEM
To bring the voluntary scheme to market, Dragon Capital had to deal with issues that are not typical for pension players in other markets.
One of them being that Vietnam doesn’t have a pension administrator – an entity that handles the day-to-day running of pension schemes and life insurance policies.
“We had to build our own pensions administration business,” said Scriven.
“It’s exciting in one way because no one else is doing it and in time, we will have a business that we can offer to other entities as well.” It also involved a year of heavy investing in technology, people and processes.
In addition, Vietnam doesn’t have a separate pensions regulator – the industry is currently regulated by the Ministry of Finance, a super ministry which oversees the pensions industry but doesn’t have enough staff with knowledge of the pensions market.
“The industry needs someone to review the pensions regulations regularly and improve and update when required. It’s a journey,” said Scriven.
Dragon Capital spent almost 10 years to bring the supplementary pension scheme to market, as it thrashed out everything from technical details of the scheme to lobbying the government and finally developing the scheme.
“It will probably take another 10 years to know exactly how to do things right. But my instinct says the pensions business is a great business to be in if you get it right. And we are definitely in it for the long haul,” he said.
Scriven said the pensions management team currently consists of three people, who are involved with both investing and marketing functions. There are plans to add more people, he said.
MORE QUESTIONS AHEAD
Despite the planned launch, offering more features and services for members, there are still several issues that need reforms and further development.
One of the key questions for the government is to what extent it prioritises a social security scheme deemed voluntary. “If you’re not careful, it could look like an excessive incentive for the fortunate,” said Scriven, referring to the notion that people who can afford to pay into a voluntary scheme get tax perks that aren’t available to those who can’t afford such schemes.
Another issue that needs further study is whether pension funds should expand the investments they make.
“Currently, there is a very big focus on government debt, but how does it affect returns? We still need to consider that.”
Managing pension withdrawals is another topic on which there is still no consensus.
Vietnam doesn’t have a developed ‘annuities’ market – under which pensioners get regular payments over their retirement until their death or a specified period – and early withdrawals are also common.
“It all feeds into the question of what incentives they want to give people for social security,” said Scriven.
Clearly, much work remains to be done on building the pensions industry in Vietnam and there is currently a lot of debate about the role of institutions and how they should grow.
The government-run small social security fund model isn’t seen as ideal, so attempts are being made to understand different models.
The government is open to studying what different jurisdictions, such as Germany, Korea and China have done, said Scriven.
“There is a great willingness to look at what other countries are doing but eventually the government will make its choice based on what it believes will be best for its situation,” he said.