Like many other countries, Thailand faces a demographic crisis where a rapidly aging population is belatedly preparing for a long post-retirement life. By some estimates, the proportion of those over 65 will be 19.5 percent in 2030 and 25 percent by 2040, and these individuals will have longer lifespans compared to previous generations. While this increased longevity is a welcome sign of the country’s development, these individuals face the challenge of caring for themselves financially, and the Thai government has responded with both government and employer initiatives similar to those found in many other countries.
Thailand’s main government initiative is its social security scheme (government pensions), where both the employer and employee make equal contributions of 5% of the employee’s salary (up to a maximum of 750 THB, which is around US$20) each pay period to a government-controlled fund. Unfortunately, the scheme only covers a fraction of the overall population given that many people are employed in Thailand’s informal economy. Furthermore, with a maximum contribution of 750 Baht, the benefits provided by the scheme are insufficient to cover post-retirement living expenses.
On the employer side, employers with 10 or more employees are currently required to offer their employees the right to participate in an “employee welfare fund” (a type of defined contribution plan overseen by the Department of Labour Protection and Welfare), where the employer matches employee contributions in the same manner as the social security scheme. Employers have the option of registering for a “provident fund” (also a defined contribution plan but offered by Thai financial institutions) instead of participating in the government’s “employee welfare fund”.
In a further effort to boost the private sector’s responsibilities in this area, the Thai Cabinet approved, in principle, a series of initiatives aimed at providing for the social welfare of the country’s older citizens as reported in the Bangkok Post. The main initiative is a “mandatory” provident fund, which is expected to come into effect in 2018 and would apply to all employers (privately owned companies, state enterprises and public organisations) regardless of the number of employees, as well as all employees between the ages of 15 and 60. Participation will depend on the size of the employer (employers with 100 employees or more are required to match employee contributions within the first four years of enforcement, while smaller employers are granted more time to comply), and the contribution obligations are phased in over time. During the first three years of participation, the minimum contribution by employers and employees is 3%, before increasing to 5% from the fourth through sixth years, 7% from the seventh through ninth years, and 10% from the tenth year onward. The monthly contributions are capped at 60,000 THB, and for those employees who earn less than 10,000 THB per month only the employer will be required to contribute.
This “mandatory” provident fund has only been approved in principle by the Thai Cabinet. The law outlining the requirements for the “mandatory” provident fund is set out in the National Pension Fund Act (as proposed by the Ministry of Finance), which still needs the Cabinet’s review and approval before being passed on for the legislature’s consideration and approval for enactment. As observers familiar with the Thai legislative process know, this means it is still likely early days.