The Social Security Fund ( SSF ) should realize that this is not the time to make a decision because it faces the existential threat of going bankrupt in the upcoming decades.
Millions of workers and retirees who rely on the state income bank for their potential security will experience intense pain because of the situation.
Labour Minister Phiphat Ratchakitprakarn suggested steps last week to stop the SSF from collapsing due to inadequate funding.
As Thailand’s people ages, the lively labor contributing to the bank is shrinking, while its costs– such as the old age allowance and welfare support– continue to rise.
According to reports, the bank’s expenses may exceed its money as early as the following 10 years, forcing it to draw on resources that could be depleted in 30 to 40 years, if nothing is done.
And that is the main level, even if nothing is done. The Labour Minister’s pledge to continue looking into measures appears to be an attempt to pass the time and avoid taking motion, a political maneuver that the nation cannot manage at this crucial moment.
Established in 1990, the SSF has attracted over 24 million employees, contributing to its accumulated property of 2.6 trillion baht.
However, immediately after its establishment, many research suggested the bank’s finances were not sustainable. Despite varying assumptions and calculation models, all studies, including those conducted by the International Labour Organization ( ILO ), came to the same conclusion: the fund may run out of money in the next few decades.
In reality, Mr. Phiphat himself acknowledged this threat when he first met the newly elected Social Security Board in May.
In order to increase the firm’s risk sky, the minister at the time suggested considering various options, including raising the salary cap and increasing efforts, extending the pension age from 55 to 60 or 65, and raising the risk cover for purchases.
These actions are important because they are a part of the comprehensive reforms required to avert the fund’s collapse as well as to improve its effectiveness as a support system for the elderly and as a buffer for the general population in the event of economic shocks, such as the recent Covid-19 pandemic.
Other, more structurally sound proposals address the fund’s welfare component, which is currently insufficiently compared to the 30-baht or universal coverage, and how to harmonise it with the upcoming National Pension Fund.
Major reform is unlikely to occur any time soon without policy clarity and the courage to pursue significant structural changes. Although these steps may not be considered low-hanging fruit, they are undoubtedly necessary; they must be taken quickly to ensure the fund’s survival.
A sensible choice would be to increase the salary cap on contributions and the premium rate. The current ceiling of 15, 000 baht was established in 1990 and was intended to cover the majority of workers at the time. However, recent studies have found that workers earning more than 15, 000 baht now make up about one-third of the workforce.
Additionally, the majority of studies have determined that the fund’s current premium is insufficient to support it for the foreseeable future. To ease the burden on all parties, a gradual premium rise has been suggested, such as an increase of 2.5 % every 10 years.
Another obvious winner is lowering the retirement age’s use of old age allowances. The current retirement age of 55 was established in 1998 when Thailand’s life expectancy was 70. With life expectancy at 87, raising the retirement age is only logical now because it will allow the elderly to lead active lives and continue to contribute to the fund.
Since increasing the retirement age could have an impact on those who are nearing retirement, this rule should be put into effect gradually, increasing pension eligibility by a few months over several years to give people time to adjust. This gradual approach means that it might take a while before the retirement age extension is fully implemented, which emphasizes the need to begin right away.
If there’s one thing that deserves further deliberation, it’s the minister’s proposal to increase the investment ceiling in high-risk assets from 40 % to 50 %, aiming to boost returns from 2.5 % to 7-8 %.
This action is risky and seems unnecessary, especially since Mr. Phiphat himself acknowledged that the fund has yet to reach its current cap, with only about 25 % of its investments being viewed as high risk, given the economy’s fluctuation.
As already mentioned, it will take a concerted effort to save the SSF in order to continue to serve as a trustworthy security service as Thailand transitions through demographic ageing and other social shifts. The moment is right to act rather than to delay and explore in vain.