“options for expanding thailand’s pension coverage to the informal sector workers” by mrs....

“Options for Expanding Thailand’s Pension Coverage

to the Informal Sector Workers”

“Options for Expanding Thailand’s Pension Coverage

to the Informal Sector Workers”

By Mrs. Pannee Sathavarodom

Director–General of Fiscal Policy Office

•Sustainability and adequacy of retirement income derived from pension fund system

•Problem is aggravated by the long-term demographic trend towards aging society

•In the future, reduced active labor force will face a more heavily burden in supporting the rapidly increasing population of elderly citizens

•Sustainability and adequacy of retirement income derived from pension fund system

•Problem is aggravated by the long-term demographic trend towards aging society

•In the future, reduced active labor force will face a more heavily burden in supporting the rapidly increasing population of elderly citizens

Current Issues on Pension Reform

Current Issues on Pension Reform

Establishment of a multi-pillar system


To address the issue of adequate post-retirement incomes, Thai government has strived for years to achieve the multi-pillar system

Pillar 1 : • The first cushion for social safety net, intended

primarily to provide poverty relief • Defined benefit plan such as

1. The original form of the government pension or the PAY-AS-YOU-GO system, which is not funded2. Old Age Pension System (OAP), administered by the Social Security Office, covers about 25% of workforce.

To address the issue of adequate post-retirement incomes, Thai government has strived for years to achieve the multi-pillar system

Pillar 1 : • The first cushion for social safety net, intended

primarily to provide poverty relief • Defined benefit plan such as

1. The original form of the government pension or the PAY-AS-YOU-GO system, which is not funded2. Old Age Pension System (OAP), administered by the Social Security Office, covers about 25% of workforce.



Pillar 2 : • Usually called a mandatory accumulation

program, supposed to be a supplementary to Pillar 1

• Based on a defined contribution principle and benefits are related to an individual’s account at his/her retirement

• Example of Pillar 2 is the Government Pension Fund (GPF).

• Proposing the “National Pension Fund” (NPF), based on the defined mandatory contribution concept, funded by both employee and employer, designed to be privately managed

Pillar 2 : • Usually called a mandatory accumulation

program, supposed to be a supplementary to Pillar 1

• Based on a defined contribution principle and benefits are related to an individual’s account at his/her retirement

• Example of Pillar 2 is the Government Pension Fund (GPF).

• Proposing the “National Pension Fund” (NPF), based on the defined mandatory contribution concept, funded by both employee and employer, designed to be privately managed

Pillar 3 : • Based on a voluntary contribution. • Examples are private-sector’s provident funds

to which employers and employees voluntarily agree to contribute. Referred to occupational or employer-sponsored pension plan. Contributed by 7,800 employers and 1.7 million employees with assets value of 382 billion baht.

• Retirement Mutual Fund (RMF) also falls into this category. RMFs consist of 66 funds worth about 20 billion baht.

Pillar 3 : • Based on a voluntary contribution. • Examples are private-sector’s provident funds

to which employers and employees voluntarily agree to contribute. Referred to occupational or employer-sponsored pension plan. Contributed by 7,800 employers and 1.7 million employees with assets value of 382 billion baht.

• Retirement Mutual Fund (RMF) also falls into this category. RMFs consist of 66 funds worth about 20 billion baht.





• Ministry of Finance has provided tax concession to both private and public pension funds.

• Contribution from employers and employees, accrued benefits derived from fund’s assets as well as post-retirement benefits are exempt from income tax.

• Except for the Pay-As-You-Go system.

• Ministry of Finance has provided tax concession to both private and public pension funds.

• Contribution from employers and employees, accrued benefits derived from fund’s assets as well as post-retirement benefits are exempt from income tax.

• Except for the Pay-As-You-Go system.

• Thai pension systems cover about 10.5 million people in the formal sector out of the total 35.2 million workforces, of which 16.2 million people belongs to the formal sector.

• The existing pension system is yet to broaden its coverage to self-employed as well as informal workers, about 19 million people.

• However, the Social Security Office has been studying the possibility of broadening The current OAP’s coverage to take account of informal workers.

• Thai pension systems cover about 10.5 million people in the formal sector out of the total 35.2 million workforces, of which 16.2 million people belongs to the formal sector.

• The existing pension system is yet to broaden its coverage to self-employed as well as informal workers, about 19 million people.

• However, the Social Security Office has been studying the possibility of broadening The current OAP’s coverage to take account of informal workers.

Pension Funds for the Formal Sector

Pension Funds for the Formal Sector

• Research studies on the development of the pension system for the informal sector workers

• Country Development Partnership-Social Protection for the Informal Sector: CDP – Pension, 4 Projects are commissioned during 2003-2005 and are already completed

• Research studies on the development of the pension system for the informal sector workers

• Country Development Partnership-Social Protection for the Informal Sector: CDP – Pension, 4 Projects are commissioned during 2003-2005 and are already completed

Preparation for the establishment of the pension fund for the

informal sector workers

Preparation for the establishment of the pension fund for the

informal sector workers

Some interesting results from the 4 projects


1st Project : “Social Risks and Responses in Thailand: Analysis of Household and Individual Survey Information”

• Informal sector workers account for two-third of Thai labor force

• This group is vulnerable and subject to several aspects of risk

• They are less likely to shift back and work in the formal sector

• Hence, the old-age pension plan for informal sector should be set up as a social safety net

1st Project : “Social Risks and Responses in Thailand: Analysis of Household and Individual Survey Information”

• Informal sector workers account for two-third of Thai labor force

• This group is vulnerable and subject to several aspects of risk

• They are less likely to shift back and work in the formal sector

• Hence, the old-age pension plan for informal sector should be set up as a social safety net



2nd Project : “ The Study on Saving for Pension a nd Welfare of the Informal Workers Using Com

munity Mechanism”

• To i nvestigate key success factors of the existi ng savings group, organized by various commu

nities in Thailand

• E xisting savings- groups at community level are ready and suitable for extending their activities

- to cover savings for welfares as well as old age pension for social insurance purpose

2nd Project : “ The Study on Saving for Pension a nd Welfare of the Informal Workers Using Com

munity Mechanism”

• To i nvestigate key success factors of the existi ng savings group, organized by various commu

nities in Thailand

• E xisting savings- groups at community level are ready and suitable for extending their activities

- to cover savings for welfares as well as old age pension for social insurance purpose

3rd Project : “Social Risks, Social Protection and the Informal Sector in Thailand : Preliminary Feasibility of Savings and Pension System Options”

• Informal workers received less income, are less educated, and older than the formal sector workers. They received only the government’s universal programs.

• Suggested that the social pension for the informal workers in Thailand could be set up through the “savings culture”

• Two probable approaches for savings collection: (1) Community Mechanism or Area-Based Approach; and (2) Occupational Association Mechanism or Occupation-Base Approach

3rd Project : “Social Risks, Social Protection and the Informal Sector in Thailand : Preliminary Feasibility of Savings and Pension System Options”

• Informal workers received less income, are less educated, and older than the formal sector workers. They received only the government’s universal programs.

• Suggested that the social pension for the informal workers in Thailand could be set up through the “savings culture”

• Two probable approaches for savings collection: (1) Community Mechanism or Area-Based Approach; and (2) Occupational Association Mechanism or Occupation-Base Approach





4th Project : “Pilot Project for Establishment of Community Social Security and Old Age Pension Fund”

• The informal workers need and are willing to develop community’s old-age pension system

• They also welcome support from the authority in order to strengthen their capacity in developing community’s old-age pension

4th Project : “Pilot Project for Establishment of Community Social Security and Old Age Pension Fund”

• The informal workers need and are willing to develop community’s old-age pension system

• They also welcome support from the authority in order to strengthen their capacity in developing community’s old-age pension

The overall outcome pointed out that …..

• S avings policy can be adopted as a strategic poli -cy for development of social security and old ag

e pension for the informal workers.

• It should provide income security following retire ment of this group of workers.

• N ote that by means of the mechanism of commu nity’s pension system, Thai informal workers sho

uld possess all the potential and they are likely t -o be self sustained.

The overall outcome pointed out that …..

• S avings policy can be adopted as a strategic poli -cy for development of social security and old ag

e pension for the informal workers.

• It should provide income security following retire ment of this group of workers.

• N ote that by means of the mechanism of commu nity’s pension system, Thai informal workers sho

uld possess all the potential and they are likely t -o be self sustained.



• In 2004, samples of community’s financial organizations in several provinces were investigated and discovered that at the community level, there exist several types community’s financial groups serving different purposes such as a revolving fund for community enterprises, saving group for social security, and for old-age pension purpose.

• Public hearing workshop on Development of Community’s Savings for Social Security and Old-age Pension. Community savings fund for old-age pension was proposed. The idea of community’s savings fund for old-age pension were fully supported by workshop’s participants.

• In 2004, samples of community’s financial organizations in several provinces were investigated and discovered that at the community level, there exist several types community’s financial groups serving different purposes such as a revolving fund for community enterprises, saving group for social security, and for old-age pension purpose.

• Public hearing workshop on Development of Community’s Savings for Social Security and Old-age Pension. Community savings fund for old-age pension was proposed. The idea of community’s savings fund for old-age pension were fully supported by workshop’s participants.

Results from other study and workshop

Results from other study and workshop

Examples of Community Saving GroupExamples of Community Saving Group

Klong Piah Saving Group, Song Kla province

• A community saving group for people’s welfare was voluntarily founded.

• Saving group collects savings and contributions from and offers 14 kinds of social welfare to its members, including pension for those working for the saving organization.

• Other social welfare benefits including medical care, education, funeral service, and child delivery, etc.

Klong Piah Saving Group, Song Kla province


• Saving group collects savings and contributions from and offers 14 kinds of social welfare to its members, including pension for those working for the saving organization.

• Other social welfare benefits including medical care, education, funeral service, and child delivery, etc.

Examples of Community Saving GroupExamples of Community Saving Group

In Jana District, Song Kla, and Lam Pang Province


• Community’s members pledged to sacrifice their daily expenses 1 baht/day and deposit into a community saving fund.

• Accumulated contribution will be used for social welfare of members including medical care, education, funeral service, and child delivery, etc.

• Post retirement benefits : a retired member contributing up to a certain period will receive monthly benefits.

• Contribution is managed by the community committee who set up criteria, terms and condition of fund’s management.

In Jana District, Song Kla, and Lam Pang Province


• Community’s members pledged to sacrifice their daily expenses 1 baht/day and deposit into a community saving fund.

• Accumulated contribution will be used for social welfare of members including medical care, education, funeral service, and child delivery, etc.

• Post retirement benefits : a retired member contributing up to a certain period will receive monthly benefits.

• Contribution is managed by the community committee who set up criteria, terms and condition of fund’s management.

The main findings from several studies, seminars and workshops:

The main findings from several studies, seminars and workshops:

• The use of community saving funds could be one of the options to serve for the fun

-ction of social security especially the old age pension for the informal workers.

• These community saving funds should be-self administered.

• Proper support and technical assistance are needed.

• The use of community saving funds could be one of the options to serve for the fun

-ction of social security especially the old age pension for the informal workers.

• These community saving funds should be-self administered.

• Proper support and technical assistance are needed.

Proposal for “Saving for Welfare and Old-age Pension of the Informal

Workers Using Community Mechanism”



Two primary objectives • First, to collect savings of informal

workers which are dispersed among various forms of community financial organization, at present.

• Second, is to set up an old-age pension system for those informal workers.

Two primary objectives • First, to collect savings of informal

workers which are dispersed among various forms of community financial organization, at present.

• Second, is to set up an old-age pension system for those informal workers.





Rationale • - Community old age pension fund can be furthe

r developed from community saving funds that already exist throughout the country.

• S hould be separated into 2 funds, o ne for fund amental social welfare, t he other - for old age pe

nsion purpose. Si nce the latter provides incom e security upon retirement involving time dime

nsion and accrued benefits derived from memb ers’ contributions.

Rationale • - Community old age pension fund can be furthe

r developed from community saving funds that already exist throughout the country.

• S hould be separated into 2 funds, o ne for fund amental social welfare, t he other - for old age pe

nsion purpose. Si nce the latter provides incom e security upon retirement involving time dime

nsion and accrued benefits derived from memb ers’ contributions.





Rationale (continued)• Community saving funds should be integrated

- with network of community level funds, so as to be able to assist, cooperate and exchange a

dministrative information among themselves.• A special i nstitution is needed to provide assis

tance in terms of knowledge, risk and financial management, and to coordinate the funds wit

h other relevant agencies• Community old-age pension for informal

workers s hould be integrated with the rest of f inancial system

Rationale (continued)• Community saving funds should be integrated

- with network of community level funds, so as to be able to assist, cooperate and exchange a

dministrative information among themselves.• A special i nstitution is needed to provide assis

tance in terms of knowledge, risk and financial management, and to coordinate the funds wit

h other relevant agencies• Community old-age pension for informal

workers s hould be integrated with the rest of f inancial system

Old-age pension for informal workers, using community mechanism ... is one of

the options

The way forward ….


the options

The way forward ….4 areas of further consideration• First, to promote a nationwide efficient, robust,

and sustainable saving-groups at the community level

• Second, properly address issues related to legal status and legitimacy of the existing community saving groups

• Third, community saving groups or community financial organizations should be established in a network system or institutionalized in a similar manner as the formal financial institutions

• Forth, the roles of government

4 areas of further consideration• First, to promote a nationwide efficient, robust,

and sustainable saving-groups at the community level

• Second, properly address issues related to legal status and legitimacy of the existing community saving groups

• Third, community saving groups or community financial organizations should be established in a network system or institutionalized in a similar manner as the formal financial institutions

• Forth, the roles of government


the options



the options

The way forward ….Areas of further considerationWith regard to the roles of government• Ministry of Finance should play a role in strengthening

technical knowledge in financial/risk management, financial discipline, this could be done in terms of capacity building

• Advise on how to improve return on assets. Provide information on other viable alternatives for investment reserves and assets, apart from earnings from bank saving deposit.

• They should also benefit from capital market development where there are increasing numbers and variety of financial instruments with different associated risks

Areas of further considerationWith regard to the roles of government• Ministry of Finance should play a role in strengthening

technical knowledge in financial/risk management, financial discipline, this could be done in terms of capacity building

• Advise on how to improve return on assets. Provide information on other viable alternatives for investment reserves and assets, apart from earnings from bank saving deposit.

• They should also benefit from capital market development where there are increasing numbers and variety of financial instruments with different associated risks


the options



the options


The two master-plans namely, • Financial Plan for the Grass Root Level

and • Financial and Fiscal Plans for the Social Sector

Should be implemented and be used as guidelines to promote savings as well as provision for social welfare at the grass root level

The two master-plans namely, • Financial Plan for the Grass Root Level

and • Financial and Fiscal Plans for the Social Sector

Should be implemented and be used as guidelines to promote savings as well as provision for social welfare at the grass root level

... Another options ...Broadening the coverage of the Old Age Pension Fund to cover also the informal

workers.

... Another options ...Broadening the coverage of the Old Age Pension Fund to cover also the informal

workers. • This option can be pursued in accordance

with workers’ occupation, for informal workers who are financially capable of saving for the retirement benefit purpose

• Base of their occupations, the entertainer, direct seller, tour guide, and vender are among the first groups that are considered most ready ones

• This option can be pursued in accordance with workers’ occupation, for informal workers who are financially capable of saving for the retirement benefit purpose

• Base of their occupations, the entertainer, direct seller, tour guide, and vender are among the first groups that are considered most ready ones

... Concluding Remarks … 2 most likely options

... Concluding Remarks … 2 most likely options

• One is to further develop the community saving funds. Follow ing the four recommended areas of study and consideration.

• The other option is to extend the coverage of the Old Age Pen sion Plan to take account of workers in the informal sector as well. This option is based on workers’ occupations, starting w

ith the most ready occupation groups.• Fiscal Policy Office will e xplore b oth options in more details• The success of broadening pension system to informal sector

- would help improve post retirement financial status of the inf ormal workers and reduce the need for other government so

cial security programs for the informal sector. Hence, more publ ic resources will be available for other purposes

• One is to further develop the community saving funds. Follow ing the four recommended areas of study and consideration.

• The other option is to extend the coverage of the Old Age Pen sion Plan to take account of workers in the informal sector as well. This option is based on workers’ occupations, starting w

ith the most ready occupation groups.• Fiscal Policy Office will e xplore b oth options in more details• The success of broadening pension system to informal sector

- would help improve post retirement financial status of the inf ormal workers and reduce the need for other government so

cial security programs for the informal sector. Hence, more publ ic resources will be available for other purposes

... Thank You … for your attention

“options for expanding thailand’s pension coverage to the informal sector workers” by mrs....

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