How fiscally tolerable is Thailand’s social security pension fund to early retirement decisions?

Abstract

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.