Path to Social Security’s survival mapped out

The Social Security Fund’s accumulated total is projected to reach 5 trillion baht by 2025, but this amount risks being drastically depleted by 2054 due to two major factors: increasing life expectancy and declining birth rates, leading to a shrinking workforce and low contribution rates.

The Thailand Development Research Institute (TDRI) and the insured’s representatives are proposing such solutions as adjusting the criteria for old-age pensions, recalculating social security, raising the retirement age, modifying the contribution ceiling, and increasing the number of insured individuals in other categories to ensure the fund grows and remains solvent.

The Q1 2024 report by the Office of the National Economic and Social Development Council highlighted concerns about the sustainability of the Social Security Fund due to the rising number of retirees, contrasted with a declining trend in new workforce entrants contributing to the fund.

A study by the Office in 2023 indicated a significant decrease in the fund’s revenue-expenditure ratio. In 2013, the expenditure-to-revenue ratio was 34.6%, but by 2021 had already increased to 73.4%.

By 2032, the number of insured individuals seeking old-age benefits may reach 2.3 million, up from 760,000 in 2022, posing a liquidity and sustainability risk to the fund and potentially impacting future benefits for the insured.

Labour Minister Phiphat Ratchakitprakarn said that the Social Security Fund held approximately 2.55 trillion baht at the end of 2023 and was expected to reach its peak of 5 trillion baht in 2025. However, without changes, the fund could be exhausted by 2054 due to Thailand's ageing society and low birth rates.

The Social Security Office has studied various approaches to ensure the sustainability of the Social Security Fund, including adjusting the salary cap to enhance benefits, increasing revenue and expenditure, expanding coverage to include more foreign workers and short-term insured individuals, enhancing investment returns, gradually increasing the retirement age from 55 to 65, and raising the contribution rate for the old-age pension fund.

Professor Worawan Chandoevwit, a social security consultant at TDRI, identified two critical issues: demographic changes, with increasing longevity and declining birth rates resulting in fewer contributors to the pension fund and more beneficiaries; and financial issues, with contribution rates being too low.
Proposals to enhance fund sustainability include:

Increase retirement age: Prolonging work life for those capable of continuing employment, thereby increasing contributions and delaying pension payouts.

Adjust contribution ceiling: Gradually raise the pension contribution rate from the current 4% to a suggested minimum of 15-20%, starting with new entrants.

Maximise investment returns: Improve investment returns beyond the current average of 4% per year, which is insufficient for a fund of this size.

Recover debts: particularly from the government, to reinvest and enhance returns.

Improve efficiency: Reduce administrative costs, which are currently high.

“These proposals are not easy to implement, especially concerning raising the retirement age and adjusting the contribution ceiling. Therefore, any changes must involve a consultation process with the insured, gradually building understanding and a clear roadmap. However, increasing investment returns, recovering debts, and improving management efficiency can be done more quickly and easily as they do not directly impact the insured," said Professor Worawan.

Asst. Prof Sustarum Thammaboosadee, a representative of the insured and a member of the Social Security Board, emphasised the need to expand the number of insured individuals through other sections and improve benefits to attract more participants. Recovering significant outstanding debts, including approximately 50 billion baht owed by the government, and charging interest on these debts could provide additional funds to improve benefits.

“As a representative on the Social Security Board for the insured, I always emphasise that enhancing or improving benefits does not conflict with the sustainability of the fund. Often, there is a misconception that increasing benefits will lead to the fund's insolvency,” Sustarum said.

“There are multiple strategies to address existing loopholes and ensure the fund's sustainability. Despite current projections indicating potential challenges, ongoing adjustments and reforms can maintain the fund’s stability and prevent insolvency," he added.