Vietnam is set to reduce minimum investment holdings of government bonds in supplementary pension funds, a move that industry participants say could materially improve their long-term returns, boost the local stock market, and accelerate take-up of the nascent private pension system in the Southeast Asian nation.
The amendments are in the so-called decree 88 governing supplementary pension funds, and are expected by the end of March, according to Nguyen Nhu Thuy, director for pensions at local asset manager Dragon Capital.
Supplementary pension funds are private retirement funds that have to be held for the long term.
“Early drafts indicate a relaxation of mandatory holdings of Vietnamese government bonds, a long-standing concern among asset managers,” Nguyen tells Asia Asset Management.
She says the government is proposing to reduce minimum allocations to Vietnam government bonds to 30% for funds with 50 billion dong of assets (US$1.9 million) and 40% for those with 100 billion dong, giving managers greater flexibility to allocate to higher return assets like stocks.
Currently, all supplementary pension funds, regardless of asset size, have to hold at least 50% in government bonds.
Nguyen also says the finance ministry is expected to announce details of personal income tax relief for employee contributions to supplementary pensions around the middle of the year.
Last month, the ministry raised the corporate tax deductible limit for employers, allowing companies to contribute up to 60 million dong per employee a year, up from 36 million dong previously.
According to Nguyen, policymakers are considering setting the employee tax deductible cap at 36 million dong a year. “This is not law yet, but it is likely the policy direction,” she says.
Local asset managers are lobbying for the personal relief to be linked to a percentage of monthly salary instead of a fixed amount. “This would improve uptake among higher income professionals,” she says, arguing that a proportional structure will better protect retirement savings against inflation.
