[August 01, 2008]

Thailand national provident fund due soon for ageing population

(Bangkok Post (Thailand) (KRT) Via Acquire Media NewsEdge) Aug. 1--A new National Provident Fund (NPF) could be established within two years to help strengthen the country's social safety net as it deals with an ageing population.

Kannikar Ekpaopun, director of the savings and investment bureau of the Fiscal Policy Office, said authorities had been studying the establishment of a new mandatory provident fund system for eight years.

Pension and retirement benefits are currently offered through the mandatory Social Security Fund, with voluntary provident funds, retirement mutual funds and long-term equity funds used to supplement retirement savings.

But authorities say Thailand's ageing population and demographic shifts have increased the importance of supplementing retirement programmes if the government is to avoid sharply rising costs for health care and social programmes in the future.

Mrs Kannikar said the NPF would be an independent entity with investment policy set by a professional committee. Assets will be managed by professional fund managers licensed by the Securities and Exchange Commission.

At the outset, participation and contributions to the NPF would be made mandatory for companies with more than 100 employees. Smaller companies with 10 to 99 employees will be forced to participate six years after the fund is established, with all companies to participate from the 11th year.

Employers and employees would be required to contribute 3 percent of their salaries to the fund. Workers earning less than 6,000 baht per month will be exempted from contributions, although employers will still be required to participate.

For companies with existing provident funds, authorities will permit them to shift the 3 percent contribution requirement to the NPF, with any excess continued with their existing provident fund.

Benefits offered by the NPF include pensions set at 17 percent of a member's final salary. When combined with the 38 percent of final salary paid by the Social Security Fund, workers would in total receive pension benefits of 55 percent of their final salaries, tax free.

"This is a long-term fund that will benefit employees and help strengthen the country's fundamentals in the future," Mrs Kannikar said, adding that annual contributions to the fund were estimated at 25.6 billion baht per year.

She said Thailand would face massive demographic change over the next several years, with the proportion of the population over age 60 expected to double to 18.21 percent in 2025 from 9.4 percent in 2000.

Life expectancies for men are also projected to rise to 75 years from 67 now and 80 years from 74 for women, thanks to improved health care.

"For most Thais, we estimate that a pension of 50 percent to 60 percent of a retiree's final salary is necessary upon retirement. Right now, under the Social Security Fund, benefits amount to only 38 percent, and that is not enough to cover living expenses," Mrs Kannikar said.

At the end of 2007, Thailand had a population of 65.72 million and a labour force of 36.87 million. Of those not employed, children aged below 15 years amounted to 14.7 million people.

Of the active workforce, only 10.91 million people or 29.95 percent were members of a retirement programme, including 9.15 million private workers, 1.49 million civil servants and 0.27 million state enterprise employees.

Last year, the government spent 10.58 billion baht to support benefits for 1.8 million people in retirement.

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