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The Economist, 16 May 2015 - FOREIGN firms love Vietnam for its cheap electricity and docile workers. On the outskirts of Ho Chi Minh City, the country’s economic hub, hundreds of drab factories hum with quiet efficiency. Uniformed employees file by impassive security guards; shoes, garments and widgets leave by the truckload for nearby ports.

Yet the calm occasionally shatters. In March perhaps 80,000 workers at a giant factory owned by Pou Yuen, a Taiwanese firm, walked off the job in protest at mooted changes to Vietnam’s social-insurance system—suspending the supply of shoe soles to companies such as Adidas, Converse, Nike and Reebok. The employees returned to work only after a top official, Nguyen Van Nen, hinted at a U-turn. He said that a government meeting scheduled for May 20th would look for solutions to the protesters’ concerns.

One change in particular has riled the workers. For years they have been entitled—oddly—to claim their pension pot as a lump sum a year after leaving a job. A new law passed last year but yet to take effect would lock funds away until retirement. That is a step backward for workers’ rights, according to Le Thi Cong Nhan, a labour activist. Luong Thi Mai Thi, a 21-year-old worker at the Pou Yuen factory, says the idea of the government holding a worker’s money until retirement is “unfair”.

Big changes to the Vietnam Social Security Fund (VSS) seem inevitable, sooner or later. In 2013 the International Labour Organisation warned that without reform the system, created in 1995, would run a deficit by 2021 and would run dry by 2034. Pensions for civil servants, at more than 100% of their wages, are absurdly high. A declining birth rate makes the system ever less sustainable.

It is also crippled by fraud. Companies chronically underreport wages as a way of skimping on the 14% of an average worker’s salary that VSS requires employers to cough up. Bosses tend not to recalculate pension contributions when giving their staff pay rises, for example. Those firms that play by the rules find themselves at a disadvantage when hiring and retaining staff, because their honesty means workers must sacrifice more of their own pay cheques, too.

But Vietnam’s youthful population (more than two-fifths are under the age of 25) struggles to see the benefit of locking away some 8% of their monthly salary throughout their working lives. Some workers at Pou Yuen’s factory, for example, planned to use the lump sum that would be owed to them after a few years’ hard graft to invest in family farms or start their own businesses. Beyond considerations of fairness, many simply do not trust the government to guard their cash piles until they retire.

In the end, fears that the strike in Ho Chi Minh City would lead to violence proved unfounded. Nor does it appear to have shaken foreign investors much. Yet Vietnam’s leaders now have reason to tread cautiously. The strike was unusually large, and leaders are probably keen to suppress any signs of public unrest as they jostle for position ahead of a political transition at the start of 2016 (see Banyan). Hoang Thi Minh, an expert on social security policy at Hanoi Law University, says that the National Assembly may well agree to restore lump-sum payments.

Delaying tough reforms will doubtless make workers less secure in the long term, even though VSS is not immediately at risk of collapse. But even timely fiddling will do nothing to help Vietnam’s millions of informal-sector workers, who make upabout a quarter of the workforce but only a tiny fraction of people in the social-security system. “Social security is only good if you have a job and your company pays,” says Tran Thi Ha, who sells vegetables in Ho Chi Minh City. In retirement, her only safety net will be whatever financial support she receives from her daughter and future grandchildren.

Source: http://www.economist.com/news/asia/21651299-communist-party-back-pedals-pension-reform-lost-generations

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