Welfare benefits for rising elderly population could pose risk

The Fiscal Policy Office (FPO) has urged the government to enlarge its revenue channels and funding sources to be better placed to handle this looming problem.

Speaking at the Government Pension Fund’s annual seminar, held on the theme of "Economic Policy for Promotion of Systematic Savings by Workers in Public and Private Agencies", Deputy Finance Minister Wisudhi Srisuphan yesterday said the government had last year spent the equivalent of about 2 per cent of GDP on welfare for the ageing population. This was within the Finance Ministry’s range of maintaining spending on people’s welfare at 2-3 per cent of GDP.

Although this welfare burden will likely rise in the future, the government’s revenue will increase correspondingly and the budget for the ageing population – those helped via either the Social Security Fund or the National Savings Fund – will be kept at a reasonable level, he said.

Nawaporn Wiriyanupong, a senior economist at the FPO, said the government welfare budget for the ageing population had risen consistently, which could affect fiscal stability in the long term.

The welfare budget for this segment of the population increased to Bt291 billion or 2.2 per cent of GDP in 2014, from Bt126 billion or 1.39 per cent of GDP in 2008.

The FPO estimates that by 2025, the figure will reach Bt873 billion or 2.98 per cent of GDP, Nawaporn said, adding that the office considered this a potential risk to the national budget and affecting the administration’s long-term fiscal stance.

The government may therefore need to find other sources of funding, aside from the budget, for this issue, she told the seminar.

She said the upward trend for this part of the national budget had emerged after the government looked into the savings channels of all groups of retired persons, excluding the underground – or unregistered – workforce.

About 90 per cent of underground workers have no savings system for retirement, she added.

Nawaporn said the government might need to adopt a proactive policy to encourage the underground workforce to enter the savings system, while raising members’ savings level.

The private sector may also need to provide savings-related knowledge to its unregistered workers.

The sufficiency of savers’ money after retirement continues to be a challenge for governments in all countries, Nawaporn said. In some countries, the retirement age is extended, contributions to funds for retirement are raised, and pension funds’ investment policies are adjusted for higher returns, she explained.

In Thailand, the government provides ageing benefits for 2.2 million civil servants through the pension system, and for another 7.7 million people via its allowance for the elderly.

The Social Security Fund has 11.36 million members, while the Government Pension Fund (GPF) has 1.23 million.

Sombat Narawutthichai, secretary-general of the GPF, told the seminar that as of mid-September, the fund’s return on its investments was about 2.5-2.7 per cent. It targets a return that is higher than inflation and deposit rates, or about 2.5 per cent.

Currently, the GPF invests in low-risk assets, including government bonds. Some 63 per cent of its investment is in government bonds and bank deposits, 14 per cent in stocks overseas, 10 per cent in the Kingdom’s stock markets, and 5 per cent in property.

"The GPF’s investment diversification results in its returns staying within the target range, on average. Despite the SET Index dropping in the past two or three years, the GPF’s return continued to be positive," Sombat said.

Amid Thailand’s slow economic recovery, medium-to-long-term investors, including the GPF, are unlikely to witness any problem when it comes to investment, but short-term investors could be affected, he added.