Due to the difficulties in life, mainly because of the raging Covid-19 pandemic, many employees have chosen the methods of receiving lump-sum social insurance in Vietnam, instead of worrying about 10, 20 years ahead in the future. Although taking a huge bundle of money at a moment might seem like a great deal, however, the employees need to carefully reconsider the pros and cons of that action. So, what are the benefits and disadvantages when receiving lump-sum social insurance in Vietnam?
Although most experts strongly disagree with the action of taking lump-sum social insurance, it should be noted that there are many circumstances in which the employees have no other choice but to participate in the lump-sum social insurance system in Vietnam.
This is because they are in critical conditions and have no other ways to treat a disease, cover their lives with food and other basic needs in life, etc.
In those situations, although we still can't agree, we can understand why they did what they did.
However, for the situations when the employees just need to take a huge bundle of money to invest in some activities, or basically just don't believe in the social insurance system in Vietnam, etc., those actions are strongly condemned because they are basically ruining their future when they still have other choices.
So, in the end, what are the benefits and disadvantages when receiving lump-sum social insurance in Vietnam?
Benefits when receiving lump-sum social insurance in Vietnam
First of all, there are some kinds of benefits when receiving lump-sum social insurance in Vietnam as the employees would not take it if it is completely of no use.
Specifically, the employee will earn a huge amount of money in a short time. The money can reach up to hundreds of millions of VND, or in some rare cases, half a billion or even more.
They can use that money to reinvest in banks, the stock market, gold, foreign currency, etc. in order to multiply that money.
Although most of these methods are risky, if the employee has a good strategy to invest in, they will have a high chance to succeed.
The specific amount of money that the employee participates in the social insurance system can get when they decide to take the lump-sum social insurance system in Vietnam are:
For employees participating in compulsory social insurance
The lump-sum social insurance benefit is calculated according to the number of years of paying social insurance premiums, each year is calculated as follows:
– 1.5 months the average monthly salary on which social insurance premiums are based for the years of payment before 2014;
– 02 months the average monthly salary on which social insurance premiums are based for the years of payment from 2014 onwards;
– Employees who have paid social insurance premiums for less than one year, the lump-sum social insurance benefit is calculated at 22% of the monthly salary for which social insurance premiums have been paid, and the maximum level is equal to 02 months of the average monthly salary on which social insurance is paid.
For employees participating in voluntary social insurance
This case is extremely rare in real life as the freelancer who has decided to pay voluntary social insurance won't likely to take lump-sum social insurance, mainly because they will lose a lot of money while getting back very little in the end.
Nonetheless, the lump-sum social insurance benefit is calculated according to the number of years of paying social insurance premiums, each year is calculated as follows:
– 1.5 months the average monthly income on which social insurance premiums are based for the years of payment before 2014;
– 02 months of average monthly income on which social insurance premiums are based for the years of payment from 2014 onwards;
– In case the period of payment of social insurance premium is less than one year, the social insurance benefit rate is equal to the paid amount, and the maximum level is equal to 02 months of the average monthly income for which social insurance is paid.
Notes when self-calculating the lump-sum social insurance
When calculating the lump-sum social insurance benefit in case the period of payment of social insurance premiums has odd months, from 01 months to 06 months is counted as half a year, from 07 months to 11 months is counted as one year.
In case the employee takes payment of social insurance contributions before and after January 1, 2014, but the payment period before January 1, 2014, has odd months, those odd months will be changed to the period of social insurance payment from January 1, 2014, onwards as a basis for calculating lump-sum social insurance benefits.
Disadvantages when receiving lump-sum social insurance in Vietnam
Although the benefits are somewhat debatable, the disadvantages when receiving lump-sum social insurance in Vietnam are very clear, for experts in the Labor Code as well as the employees who have decided to take lump-sum social insurance in Vietnam.
Receiving social insurance once can solve some immediate difficulties, but it means that employees are losing the opportunity to enjoy social security when they reach old age.
Accordingly, the period of payment of social insurance premiums already calculated to enjoy lump-sum social insurance benefits of employees will not be counted as the basis for calculating other social insurance benefits.
The employees will no longer be in the social insurance system protected by the State for social security. This means that they lose the opportunity to participate in health insurance for 5 consecutive years to enjoy benefits with high-tech medical services and expensive drugs.
They will also have to pay for medical examination and treatment costs by themselves with a 100% ratio if unfortunately suffer from illness or accident (except for the case where the employee reaches an age that will receive support on medical and financial from the Government).
Most importantly, the employee will not receive the monthly pension at the end of the retirement age or retire early before the retirement age due to a decline in labor health.
Support when some unfortunate events transpire
Not just pension and medical system – the 2 most important aspects for employees but they will also not have many other benefits if they decide to take lump-sum social insurance.
Specifically, these below benefits are completely gone:
- Funeral allowance for family/caretaker in case the employee dies: 10 times the base salary (Currently near 15 million VND. This amount will likely increase in the following years)
- Survivorship allowance for the employee's relatives in case the employee dies: Depending on the case, they are entitled to a monthly or lump-sum survivorship allowance.
Regarding the above policies that take place if the employees, unfortunately, passed away, in society nowadays, there is a kind of ideal that the employees are afraid of contributing for 20, 30 years in continuity and passed away right before or just a few months when they are entitled to receiving pension and enjoy old age.
However, if that scenario indeed happens, the social insurance system in Vietnam will not just simply abandon them. If the employee is dead, their spouse, children or parents, or relatives will be the ones that are supported by the government.
It should be made clear that although the employee normally won't receive the full amount of money they have paid in the system, they or their relatives will receive a large portion of that amount.
On the other hand, in some cases, if the employees, unfortunately, caught a deadly disease and have to take medical care for years, they will actually be the ones that receive the benefits from the system cause they won't likely have enough money to pay the medical bills for years, creating a burden for their children and relatives.
Clear calculation of what the employees lost if they participate in a lump-sum social insurance system
To have a clear answer on what amount of money the employees might lose if they participate in the lump-sum social insurance system, we have to consider an example: An employee has full 20 years of paying social insurance premiums (from 2001 to 2020), with the average salary as the basis for social insurance payment being 4,000,000 VND/month (This amount is lower than the current minimum wage to pay social insurance in 2022).
Assuming employees are eligible for a pension or a lump-sum social insurance benefit in 2022, the employee will receive the following amount (This number is of the lowest and hasn't included beneficiary factors such as Social Security Slippage):
For male employees:
The minimum rate of pension benefit is 45% with the pension being 1,800,000 VND/month.
Currently, the average life expectancy of men is 71 years old, and the number of months of a retirement pension at the age of 60 years and 6 months (in 2022) until death is 126 months.
So the total pension received is:
126 x 1,800,000 VND = 226.800.000 VND
In addition, the male employee will also receive the benefits:
– Pay health insurance card (4.5% monthly pension: 4.5% x 126 x 1,800,000 = 10,206,000 VND)
– Funeral allowance (10 months' base salary): 14,900,000 VND
– Lump-sum survivorship allowance (03 months' pension before death): 5,400,000 VND
The total amount of money to be entitled to from the social insurance fund when receiving a pension for a male employee is 257,306,000 VND
For female employees:
The minimum rate of pension benefits is 55% with the pension being 2,200,000 VND/month.
Currently, the average life expectancy of women is 76.3 years old, and the number of months of retirement pension at the age of 55 years and 8 months (in 2022) until death is 247 months.
So the total pension received is:
247 x 2,200,000 VND = 543.400.000 VND
In addition, the female employee will also receive the benefits:
– Pay health insurance card (4.5% monthly pension): 4.5% x 247 x 2,200,000 = 24,453,000 VND
– Funeral allowance (10 months' base salary): 14,900,000 VND
– Lump-sum survivorship allowance (03 months of pension before death): 6,600,000 VND
The total amount of money to be entitled to from the social insurance fund when receiving a pension for a female employee is 589,353,000 VND
Losses when taking lump-sum payment of social insurance
Assuming that an employee has 20 years of paying social insurance premiums and is eligible to enjoy lump-sum social insurance, the lump-sum payment of social insurance will be:
4,000,000 VND x (1.5 x 13 years + 2 x 7 years) = 134,000,000 VND
Male employees receiving a pension will receive more profits than those receiving lump-sum social insurance with the following amounts: 257,306,000 VND – 134,000,000 VND = 123,306,000 VND
Female employees receiving a pension will receive more profits than those receiving lump-sum social insurance with the following amounts: 589,353,000 VND – 134,000,000 VND = 455,353,000 VND
Thus, it can be clearly seen that employees who enjoy a pension scheme will have more benefits than those choosing to receive lump-sum social insurance. Enjoying lump-sum social insurance means that the employee leaves the social insurance system and deprives himself/herself of his/her basic security rights.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
