Setting up workplace pensions and insurance for employees

Dear Sven, I have been running a successful diving school in Vietnam for many years now and have a loyal team of employees, most of whom are Vietnamese. I am worried that when they want to retire or are unable to work due to illness or injury, they will not have sufficient savings/insurance in place to provide for themselves and their families. Is there any way I can set up a universal pension plan for them in Vietnam which I could contribute to on their behalf, or an option that would allow me to deduct a certain amount off their salaries every month to finance such a scheme?

Your concerns are most certainly valid. It would be risky to rely solely on the government to finance citizens who are not able to work in any country, especially in Vietnam, because of low coverage rates in both the formal and informal sectors and the weak capacity for management and implementation of social security programs. Adding fuel to the fire is Vietnam’s rapid population growth and the fact that 25 percent of the population is aged between 10 and 24. Eventually these people will become old and it will become extraordinarily difficult for the government to fund all social security needs. The onus will begin to fall upon companies and employees themselves to make sure they secure their financial futures (much like the West).

Providing added benefits to employees leverages a company’s recruitment program. Job seekers will always be attracted to companies who provide them with adequate benefits and security. Loyal employees will stay longer and remain loyal if they know that the company is at least making an effort to take care of them and their families’ future.

Fortunately there are several options provided by most of the major insurance companies in Vietnam, where your company is able to contribute 100 percent to a pension plan on behalf of all your employees, or where you and your employees could contribute on a dollar- for-dollar basis. Contribution to pension/ savings usually has added tax benefits for companies and employees.

Manulife offers a collective pension/ coverage plan called My Freedom. With this plan your company will be the plan holder and the employees the beneficiaries. The plan covers employees for both life insurance and takes the form of a savings account as well, where female employees are allowed to begin claiming benefits from between the ages of 55 and 70 and males between the 60 and 70 years of age. The life insurance benefit in case of death will be a guaranteed amount, while the amount of money from savings that employees will be able to claim when they come of age will depend on the total amount contributed throughout the period. Companies are able to target how much they would like to contribute to the plan per year, according to their budget. Unfortunately the plan is heavily front- loaded with charges, which decrease significantly throughout the years. Therefore the longer the term of your contribution, the less charges will be levied as a percentage of contributions in later years. A great benefit of the plan is that the returns will not fall below a minimum guaranteed level.

Additionally, Prudential provides a great option for employees that are perhaps for more sophisticated investors who would like to start a savings plan in their own name, and gain the opportunity to obtain higher returns from risky access to Vietnamese stock and bond markets. The Pru-wealth Assured plan covers against critical illness and provides a diversified investment portfolio via mutual funds run by Prudential’s investment management arm, Eastspring Investments. The fund returns have been historically very good; however charges are highly front-loaded as well so it would make sense to contribute to this option for the long term.

Beginning the process of starting your employee benefit scheme is as easy as giving the relevant company a call and asking whether a consultant would be able to come to your office and discuss the details. The consultants speak English well and would be more than willing to do presentations for your employees. You can also discuss your contribution model, whether it will come 100 percent from the company, or shared between the company and employees.

BIO: Sven Roering is a partner and financial planner at Total Wealth Management PTE. Ltd (www.t-wm.com). He holds an Economics Degree from Rhodes University in South Africa, and is a candidate in the Chartered Financial Analyst (CFA) program, having successfully completed level 1 and is currently working towards the level 2 exam.

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