Academic journal article Asian Social Science

How Fiscally Tolerable Is Thailand's Social Security Pension Fund to Early Retirement Decisions?

Academic journal article Asian Social Science

How Fiscally Tolerable Is Thailand's Social Security Pension Fund to Early Retirement Decisions?

Article excerpt


This research paper assesses the fiscal tolerability of the Thai Social Security Pension Fund to early retirement decisions, particularly among the workforce aged 50-54. Starting from 2014, the Social Security Pension Fund is due to pay regular monthly pension benefits to eligible insured persons. There has been increasing concern over the potentially high proportion of early retirees opting for one-time lump-sum old-age benefits instead of the more modest amount of monthly retirement pension. This can create severe shocks to the system. Forecasts and sensitivity analyses under alternative scenarios are conducted using an actuarial method. The estimation employs the latest 2010 National Economic and Social Development Board population forecast. In the worst case scenario, with an early retirement rate of 9 percent or higher per year, the tolerability of the system can be maintained for no longer than 25 years from now. The future generations risk facing a situation in which the old-age benefits may not be promptly received in the expected amount. This points to the important policy precaution that the currently high level of reserves in the Social Security Pension Fund does not ensure fiscal sustainability and tolerability as commonly believed. The result also implies that withdrawal from the social security pension fund by the government for other purposes is fiscally detrimental to life of the fund.

Keywords: early retirement, pension funds, social security, welfare policy

(ProQuest: ... denotes formulae omitted.)

1. Introduction and Rationale

The primary objective of this paper is to assess the fiscal tolerability of the Thai Social Security Pension Fund (SSPF) when a "shock" is induced. In the study, the shock refers to the decision to take early retirement of those contributors aged between 50-54 years old. Fiscal tolerability is defined as the allowable degree of variation of indicators from the past average without causing the system to collapse. Fiscal tolerability points out how much worse the system can become and still survive. Survival, in the sense of this paper, refers to the situation where the fund has not been completely depleted. Since the Social Security System opens ways for the early retirement option, in addition to the fact that some companies provide early retirement incentives for high-salary executives, there are many opportunities for early retirement. One of the major current concerns of the Social Security Office (SSO) is the potentially large number of early retirees in the coming years starting from 2014. Up to the present, there has not been sufficient quantitative research to concretely address the impact this will have. It is, therefore, necessary to identify the degree of fiscal tolerability of the fund such that the system can be sustained.

The second objective as a by-product of the first is to further investigate whether there is really a large fiscal space in the SSPF to finance government spending as commonly believed by a number of policymakers. Constrained by budgetary gridlocks and political pressure, off-budgetary expenditure and tapping-offfrom large government-managed funds such as the Social Security Fund (SSF) will tend to become novel fiscal tools for future governments owing to the lack of discipline revealed in recent historical records and the country's relatively loose legal framework for monitoring and surveillance of usage. In 2011, the reserves for old-age benefit amounted to 595,304 million baht, which is approximately 7.4 percent of the country's gross domestic product (GDP). SSF has often been a tempting source of funds with the view that the funds, particularly the reserve for the old-age benefit payment within the SSPF, is a very large amount and should not be left"unused".

Based on the past evidence, the SSF has often been the primary target for political manipulation in at least three ways; namely;

1.1 Government's Contribution Overdue Owing to Excess Government Expenditure on Other Uses

De jure, the government is obligated to contribute to the fund. …

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