TDRI highlights risks to Social Security Fund, calls for pension fund reform to prevent collapse

The Thailand Development Research Institute (TDRI) has raised alarms about the long-term sustainability of the country’s Social Security Fund, highlighting the potential for bankruptcy unless the pension fund is reformed. TDRI’s research director for social security, Prof Dr Worawan Chandoevwit, explained that while the fund has grown to over 2.9 trillion baht, its current management model under the bureaucratic system is flawed, allowing political interference and putting the fund’s ability to pay pensions at risk in the future.

Launched in 1990, Thailand’s social security system initially offered seven key benefits, including healthcare, disability, unemployment, maternity, death benefits, pensions, and dental care. However, since 1999, the inclusion of pensions has significantly increased the fund’s size, pushing employers and employees to contribute 6% each towards pensions. This has led to rapid growth in the fund’s reserves, but the structure is proving difficult to sustain.

Worawan pointed out the key issue: the fund combines both short-term benefits (such as healthcare and unemployment benefits) and long-term benefits (pensions). While short-term benefits need high liquidity for immediate payouts, pensions require long-term investment strategies. The current system has allowed for significant political influence over the fund, with funds earmarked for pensions sometimes diverted for other uses.

The fundamental issue, according to Worawan, is that the contribution rate for pensions is insufficient—set at 6%—while the minimum pension payout is set at 20%. This mismatch between contributions and payouts creates a financial gap that threatens the long-term stability of the fund. She suggests that the contribution rate needs to be raised to 20%—with each employer and employee contributing 10%—to ensure sustainability.

However, Worawan also highlighted that trust in the system remains low. She questioned whether the public would be willing to increase their contributions if they felt the money was not being managed transparently and if there was uncertainty about future pension payouts.

To address this, she proposes separating the pension fund from the broader social security system and managing it more professionally, using the model of the Government Pension Fund (GPF). She suggests that Thailand’s 2.5 trillion baht pension fund should be managed separately from other funds such as the unemployment fund and healthcare fund, which would remain under the existing system.

This professional management approach would help restore trust and make it easier to raise contributions. If the pension fund can be managed effectively, it will ensure a secure retirement for workers, reducing long-term financial risks.

Another issue is the management fees for the Social Security Office, which are capped by law at 10% of the total contributions each year. Worawan argued that this cap, set without the guidance of actuaries, is too high in the current context and should be reviewed, especially once the pension fund is separated.

Worawan concluded that reforming the Social Security Fund cannot be a superficial fix; it requires addressing the underlying structural issues, and the government must be sincere in its efforts to resolve these problems. She emphasised that the pension funds belong to the workers who have contributed to them since 1999 and should not be diverted for other purposes.