Further detail is required to see how the new pension plan will work and its relationship to the existing 1990 Social Security Act which already provides for a limited pension scheme. One thing is clear, the cost of employment in Thailand is going to rise as the number of workers in relation to the ranks of the elderly also plummets just like the country’s birth rate has since 1971.
An announcement by the Thai cabinet on Tuesday that a new pension fund is to be set up for the elderly is the latest step by Thai authorities to deal with what will be the biggest problem facing the country over the next 20 or 30 years, that is the ageing population and rapidly declining birth rate. The new scheme, which must be presented to and approved by parliament, will see Thai workers paying more out of their salaries to fund themselves in old age. Thailand, over the next twenty years, will see the number of working-age Thais to those over 60 halved from 3.6 in 2020 to 1.8 in 2040.
The Thai cabinet, on Tuesday, approved a proposal in principle to establish a national pension plan to address an emerging crisis as the country, now officially an aged society, which will see 25% of its population aged over 60 years of age in nine-years time or by 2030.
A similar figure was quoted by deputy government spokesperson Rachada Dhnadirek after she spoke to the press on Tuesday following the cabinet decision to approve the scheme in principle.
From 2023 over 1 million Thais per year will join the ranks of old age as the birth rate plummets
Ms Rachada said that by 2033, 28% of the population will be over 60 with 1 million more people being added to the ranks of the old every year from that year with many leaving the workforce.
One response that we have seen already in Thailand and other countries such as Japan, is to encourage the elderly to work later in life where possible.
It is already reported that 40% of people over 60 in the kingdom will continue to work particularly within the casual sector where retirement is often not an option.
Thailand’s birth rate is plummeting and has already reached 1.51 which is lower than China and even lower than wealthy western countries such as Norway where the figure is now at 2.1, the rate needed for population replacement according to the World Health Organisation and the World Bank.
The kingdom saw less than 600,000 births in 2020 according to the Ministry of Public Health in February which confirmed the new birth rate, the second-lowest in the 10 nation ASEAN block to Singapore.
In 1971, this figure was close to 1.4 million which was when Thailand’s population growth peaked.
New pension fund scheme must be formalised and sent to parliament for debate and final approval
The new pension scheme will now have to be formulated and presented to parliament but there are already glaring questions about what is being proposed.
The first is if the new pension scheme is supplementary to the 1990 Social Security Scheme which already provides for a limited pension for retired people who have worked for more than 15 years and into which both employees and employers in Thailand already each pay 5% of the employee’s salary with the government contributing a further 2.7%.
Rising scale of payments by both employers and employees who will pay into the new fund up to 7%
The outline of what was agreed, in principle, on Tuesday appears to suggest a rising scale of payments by both employers and employees starting at 3% but rising to 7% after 7 years of employment and staying fixed at that level.
These costs, which are critical given the economic time bomb of Thailand’s ageing population, will clearly affect the kingdom’s competitiveness in relation to other countries in Asia and also lead to an even larger black economy and abuse of migrant workers as the cost of official employment in Thailand will now go up substantially.
2019 risk assessment by the Fiscal Policy Office found that the government had failed to pay in ฿96.4 billion to the existing social security fund
In January, the Minister of Labour, Suchart Chomklin, in the course of announcing a provision by the cabinet to pay supports to employees under the social security fund to cushion the effects of the pandemic, also revealed that the government had paid in ฿96.4 billion out of the proposed stimulus measure to plug a gap caused by delayed government payments into the fund identified by the Fiscal Policy Office in 2019 in the course of a risk assessment.
The minister blamed the shortfall on the actions of previous administrations.
It is also being proposed that this will apply to salaries from ฿10,000 per month to ฿60,000 per month with no employee deductions for those earning less than ฿10,000.
Price to be paid now for population control measures of the 1970s and a changing society where many Thai women no longer aspire to be mothers
It effectively means that workers and employers in the Thai economy going forward must now pay the price for the ageing community which has come about as a result of the population control measures introduced in the 1960s and 1970s and a growing desire among younger Thai women not to have children but instead to pursue careers in the workplace.
The statistics are quite frightening with the total working population set to decline from 43.26 million in 2020 to 36.5 million in 2040 or from 65% of the population to 56%.
Ratio of working adults to the elderly will mean a new burden on an already challenged economy
The key figure is the ratio of working adults to seniors which will fall from 3.6 now to 1.8 over the same period.
It all adds up to a large bill and a tremendous challenge to an economy already facing a multitude of other problems.
Even more worrying is the ongoing long term trend which suggests that Thailand’s population between 2021 and 2100 will fall by 34% to 46 million people.