• 
• 

Published on October 5, 2007

To rescue the social security system from possible bankruptcy, the pension scheme needs to be redesigned by raising the retirement age from 60 to 65, increasing the contribution rate and asking for more contributions from the rich, economists suggested yesterday.

It is no secret that the Bt300-billion social security fund is facing depletion in four decades, while the population is ageing and the elderly poor are increasing.

Ammar Siamwalla, acting president of the Thailand Development Research Institute, told the Bank of Thailand's annual symposium that the social security system should focus on need.

"The philosophy of social security should be changed. The old one is about exchange. The more you pay the more benefits you get. I think there should be income distribution, which is quite controversial. Social security should guarantee a minimum allowance for people," he said.

Contributions, which are currently capped at Bt15,000 per member, should be changed to a progressive rate for all workers with no cap, he said. Benefits, which are provided at the same progressive rate for everyone, should be made regressive. With this principle, those who pay more may not get more welfare.

"Is this fair? No, it's not, but society has the duty to take care of the poor. The elderly have no choice, while the rich have more options to save. The rich should be taxed higher," he said.

Central bank economists Kobsak Pootrakook and Anuk Serechetapongse proposed a revamp of the pension plan in their paper to the symposium on "Safeguarding our Nation's Nest Egg : Necessary Reforms to our Social Security System".

Under the existing scheme, if a male employee contributes Bt110,000 to the fund, he will get Bt195,000 back. A female employee would get Bt300,000. That is too generous and unsustainable, Kobsak said.

Considering the longer life expectancies of 79 years for men and 82 years for women, the official retirement age should be extended from 55 years now to 60 years and then 65 years, he said.

Thailand has a quite low replacement, or payout rate, of 15 per cent compared to other countries, so it should not be cut substantially to restore balance to the social security system, as that might aggravate the problem of the elderly poor.

The rate can be kept the same but the base benefits can be extended from 15 per cent for the first 15 years to 20 per cent. This, together with the proposed rise in the retirement age to 65 years, will allow workers who join the social security system in their 20s to enjoy a replacement rate of 45-50 per cent.

The contribution rate should also be hiked by roughly 5-6 percentage points. One-third of the increase will go to financing the additional benefits and two-thirds will help restore the original balance and reduce the present deficit.

"This should be done within the six years before 2014 when the first monthly pension cheques will be sent out to members. The sooner the redesign is done the lower the cost will be," Kobsak said.

 Jiwamol Kanoksilp

 The Nation