Year 2020: Increase in statutory pay rate, regional minimum wage leading to an increase in pensions

On the afternoon of November 12, 2019, the National Assembly voted to pass the Resolution on the 2020 State Budget Estimates. From July 1, 2020, the statutory pay rate will be adjusted from 1.49 million VND/month to 1.6 million VND/month.

Additionally, on November 15, 2019, the Government of Vietnam issued Decree 90/2019/ND-CP, which stipulates an increase in the regional minimum wage for employees working under labor contracts. Specifically:

- Areas under Region I: 4,420,000 VND/month.- Areas under Region II: 3,920,000 VND/month.- Areas under Region III: 3,430,000 VND/month.- Areas under Region IV: 3,070,000 VND/month.

These newly enacted policies will positively impact the pension policies for employees in the coming period.

(1) Regarding the minimum monthly pension

Clause 5, Article 56 of the 2014 Law on Social Insurance stipulates that "The lowest monthly pension of a worker participating in compulsory social insurance who is eligible for pension benefits under the provisions of Article 54 and Article 55 of this Law shall be equal to the statutory pay rate, except for the case specified at point i, clause 1, Article 2, and clause 3, Article 54 of this Law."

Thus, from July 1, 2020, the lowest monthly pension of a worker participating in compulsory social insurance mentioned in the above case will be 1.6 million VND/month.

Illustration (Source: Internet)

(2) Regarding the monthly pension amount

According to the provisions of Article 56 of the 2014 Law on Social Insurance, the pension amount is determined by the following formula.

Monthly pension = Benefit rate (maximum 75%) x Average monthly salary/income on which social insurance contributions are based

Where the monthly salary used to calculate social insurance contributions is determined based on whether the workplace is a state unit or private entity, specifically outlined in Article 6 of Decision 595/QD-BHXH as follows:

- For salaries prescribed by the State

+ Workers subject to salary policies prescribed by the State will have their compulsory social insurance contribution based on the salary grade, rank, military rank allowances, and other allowances such as position allowance, seniority allowance beyond the frame, and professional seniority allowance (if any). This salary is calculated based on the statutory pay rate.

+ For non-specialized workers at commune, ward, or commune-level town, the monthly social insurance contribution is based on the statutory pay rate.

- For salaries determined by the unit

+ The minimum monthly salary for compulsory social insurance contributions should not be lower than the regional minimum wage at the time of contribution for employees doing the simplest jobs in normal working conditions.

+ For employees performing tasks or holding positions that require trained labor or vocational training (including training by the enterprise itself), the salary must be at least 7% higher than the regional minimum wage.

If the monthly salary for compulsory social insurance contributions exceeds 20 times the statutory pay rate, the monthly salary for compulsory social insurance contributions will be capped at 20 times the statutory pay rate.

Therefore, the increase in the statutory pay rate and regional minimum wages will significantly impact pension and social insurance policies for employees. For the state sector, the increase in the statutory pay rate raises the monthly social insurance contribution salary; similarly, the minimum monthly social insurance contribution salary for enterprises also increases due to the rise in the regional minimum wage.

Thu Ba

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