Thai Social Security Fund on the Brink: Pro-Democracy win overshadowed by looming financial crisis. Thailand’s Social Security Fund, valued at ฿2.36 trillion, faces imminent bankruptcy within a decade if corrective action is not taken based on its net asset value. 

Thailand held groundbreaking elections on Christmas Eve for both employer and employee representatives in the administration of the country’s mammoth Social Security system and a fund valued at the end of 2022 at ฿2.36 trillion. There was a low turnout but satisfaction that it represented a step forward for democracy under a new law introduced in 2015. The good news stops there. At the same time, disturbing data shows the fund has begun to make a loss and is haemorrhaging money. So much so, that if corrective action is not taken it faces being depleted within a decade or so.

After the December 24th groundbreaking election of representatives to the Social Security Fund board, the Minister of Labour Phiphat Ratchakitprakarn expressed disappointment with the low turnout. Only 5% of workers took part. The new board members, however, have a pressing issue. How to cope with rising losses from the fund as the working population ages?

A Christmas Eve election with a low turnout however marked a defining moment for Thailand’s social security landscape. It comes as the country faces yet another crisis. This time linked with the national pension pot.

It is a problem similar to other countries worldwide but nevertheless quite acute in Thailand.

At length, fading demographics are gradually becoming the world’s top economic factor.

A group called the Progressive Social Security group emerged triumphant in the inaugural Social Security Board (SSB) election. 

Pro-democracy alliance wins the inaugural Social Security Board election on Christmas Eve under 2015 law. 294 candidates for 14 positions on the panel

The election, held on Sunday, December 24th, marked a significant step toward democratising representation within the Social Security Fund (SSF). Its members actively participated in selecting 14 new board members. Half of the newly elected members represent employees, while the other half represent employers.

Ten groups, comprising 228 individuals, vied for the coveted role of employee representatives. The election showcased a diverse range of candidates.

On the employer side, 65 candidates presented themselves for consideration.

As stipulated by law, the Social Security Board (SSB) incorporates representatives from ministries such as Labor, Finance, Interior, and Public Health. Additionally, there are officials from the Budget Bureau, ensuring a holistic representation of both employers and employees.

With the vote count almost complete at an impressive 99.57%, seven prominent figures emerged as leaders in the tally.

Academics centre took stage in the employee groups elected to the board. Seen as a pro-democracy victory

Sattharam Thammabusadee, Thanapong Chuamuangpan, Chalit Ratthapana, Sivawong Sukthawee, Nalatporn Krairuek, Laksamee Suwanphakdee, and Prathana Podee, all from the Progressive Social Security group. The new alliance took centre stage in this historic election. 

On the employer side, the winners included Montri Thirakhothai, Vipawan Maprasert, Siriwan Romchatthong, Sompong Nakhonsri, Suwit Sipioan, Thaweekiat Rongsawata, and Phetcharat Aeksangkul.

Sattharam is an academic from Thammasat University and a key figure in the Progressive Social Security group. He viewed the victory as a triumph for the pro-democracy movement.

The newly elected representative expressed gratitude to SSF members for endorsing the Progressive Social Security group.

At the same time, he pledged to advocate for workers’ rights and enhanced protections. The group’s initial mission focuses on augmenting benefits for insured workers, striving for equity in healthcare coverage, and ensuring transparency in Social Security Fund (SSF) investments.

Following the election, the Social Security Board now assumes a crucial role.

It provides guidance to the minister on social security policy and formulating regulations for SSF management, requiring approval from the Finance Ministry.

Sustainability of Social Security fund not only in question, trends point to certain trouble ahead as more workers opt out and fewer enter the workforce

Key challenges identified by the Thailand Development Research Institute (TDRI) for the SSF include addressing medical welfare benefits and ensuring the financial sustainability of the pension fund. The latter is the most significant. 

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In September 2023, the Minister of Labour announced plans to raise the retirement age in Thailand.

At this time, more workers are opting out of the workforce due to the country’s ageing crisis. The phenomenon accelerated during the pandemic emergency.

In the meantime, the numbers appear contradictory. Therefore the first job for the new board is to become familiar with the financial situation.

Earlier, after the historic election, Labour Minister Phiphat Ratchakitprakarn expressed disappointment. He was referring to the low voter turnout. 

Despite nearly 950,000 pre-registered Social Security system members being eligible to vote, only 150,000 individuals exercised their voting rights, a mere 15.79% turnout. In contrast, the employer turnout was 46.82%, aligning closely with expectations.

Social Security fund has a staggering value of ฿2.36 trillion. Losses have been recorded in recent years and are rising spectacularly fast at this time

Certainly, Thailand is approaching a pivotal moment for its Social Security Fund. The newly elected committee has its work well cut out. At stake, is nothing less than the future stability of a critical national asset. 

In short, Thailand’s social security system is quite an impressive model despite its low participation rate. Commencing with the Social Secuity Act of 1990, the fund, now 33 years old, has been a quiet success.

Nonetheless, it is estimated that more Thai employees still work in the informal economy. This includes the country’s huge agricultural economy and off the books small business concerns.

The Social Security Fund has a staggering value exceeding ฿2.36 trillion. It stands as the cornerstone of Thailand’s welfare system, providing support for millions of insured individuals.

However, its net asset value is considerably less.

Only 5% of workers voted in the poll suggesting apathy

However, beneath the seemingly robust financial surface, concerns loom regarding the sustainability of the fund. 

Previously, the election marked a historic event in Thailand. It offered insured persons and employers the opportunity to play a direct role in shaping policies for managing the colossal Social Security Fund.

The election, the first of its kind in the country, stemmed from legislation enacted in 2015. The law under Sections 33, 39, and 40 provided for representatives who will contribute to the fund’s governance.

Despite its importance, there was disappointing voter engagement. Out of more than 24 million eligible voters, only a mere 5%—949,818 individuals— registered to vote.

This raises questions about the dissemination of information and awareness among insured persons and employers.

The requirement for advanced registration may have created a barrier to participation. This was the majority of those in the Social Security system who were subsequently unable to exercise their voting rights.

On the other hand, perhaps it was simply apathy. It is common in all countries and should be accepted.

Net assets are low at ฿498,369 million. Real questions must be raised as to the social security fund’s ability to meet the demographic pressures ahead

The Social Security Fund, positioned as the largest fund in Thailand, reported its value of ฿2.362 trillion at the end of 2022. However, beneath this seemingly vast wealth lies a complex financial web. 

Net assets, after accounting for the fund’s obligations to compensate elderly insured members, amount to a mere ฿498,369 million. This raises concerns about the fund’s resilience in the face of increasing financial demands. In brief, these demands are certain given the demographic profile of the population

Examining the fund’s financial performance reveals a disturbing trend.

In 2020, the fund experienced a negative performance, with expenses exceeding income by ฿6.443 billion. This trend persisted in 2021 and 2022, with losses of ฿28.872 billion and ฿26.892 billion, respectively. 

The escalating costs, particularly in compensating insured persons for illness and old-age benefits, pose a significant challenge to the fund’s financial stability.

In 2022, expenses related to illness compensation witnessed a drastic increase. The cost reached ฿98.142 billion, doubling from the 2019 figure of ฿49.552 billion. Similarly, old-age benefits expenses in 2023 amounted to ฿27.805 billion, reflecting the growing number of individuals eligible for pensions compared to 2019.

A critical factor contributing to the fund’s financial strain is the structural change in the population.

With an ageing society, the number of workers entering the social security system is decreasing, while the number of individuals eligible for benefits is increasing.

Challenging road ahead. Latest fund financials show that the incline is rising as it faces an uphill battle with less paying in and more drawing out

This demographic shift combines with the rapid increase in illness-related expenses. At length, it paints a challenging picture of the fund’s future.

Still more alarming is the consistent annual loss experienced by the Social Security Fund. From 2020 to 2022, the fund faced a cumulative loss of ฿61.207 billion. 

The consecutive years of negative performance raise concerns about the fund’s ability to fulfil its objectives over the long term.

Looking ahead, projections suggest that without intervention, the fund could face annual losses of at least ฿28-฿30 billion. This will inevitably rise.

Given the current net assets of ฿498.369 billion, this presents a grim prospect.

At this time, it appears the fund could potentially deplete its remaining available capital within a decade.

This financial conundrum places the Social Security Fund at the centre of a financial time bomb. It is just waiting to detonate if not addressed promptly.

The fund’s ability to provide a safety net for Thai employees and workers is at stake. The rising spectre of collapse and bankruptcy is hard not to see.

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Further reading:

Ministry of Labour plans to raise the retirement age with more workers opting out of the economy

Economy at crossroads: World Bank calls for structural reform to avert two decades of low growth

Thailand’s days of GDP growth in excess of 5% may be a thing of the past as it has grown too old

Thailand’s new move to boost the birth rate and fight the negative impact of an ageing population

Change in insurance rules for retirement visas after some over 70s were forced out of Thailand

Economic plan to put the smile back in Thailand’s appeal to western foreigners to live and work

Government preparing a plan to lure millions more expats to come and live in Thailand spurring the economy

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