Thailand Approves 'Care' Formula for Pension Reform, Boosting Social Security Fairness

The cabinet has approved a new calculation method for pensions from the Social Security Fund (SSF), aimed at improving fairness and aligning Thailand’s pension system with international standards, Labour Minister Julapun Amornvivat said on Tuesday. The draft ministerial regulation on old-age benefits calls for the use of the Care (Career Average Revalued Earnings) formula to calculate pensions, he said. The regulation revises the criteria for calculating old-age pensions and lump-sum retirement benefits for insured workers to ensure that benefits more accurately reflect contributions made throughout an individual’s working life, while strengthening the long-term sustainability of the Social Security Fund (SSF). Mr Julapun said the regulation would take effect 180 days after its publication in the Royal Gazette. The Care formula will replace the existing Final Average Earnings (FAE) formula, which calculates pensions based on average salary during the final 60 months of employment, said the minister. Under the Care system, pensions will be calculated based on average earnings over an insured person’s entire working career. Historical wages will be adjusted to present-day values through a pension points system, ensuring that payments more accurately reflect lifetime contributions to the SSF. The regulation also revises the calculation of lump-sum retirement benefits for insured workers who have contributed for fewer than 180 months. Under the new rules, eligible contributors will receive a lump sum equivalent to the combined contributions made by both the employee and employer, together with accrued investment returns, even if they have contributed for less than 12 months. Previous governments have been wary of addressing pension inequity, fearing opposition from unions concerned that the reform could reduce benefits for some of their members. The opposition People’s Party, which has made Social Security reform one of its priority policies, supports the Care formula. It has said that some people who had taken advantage of the existing system were attempting to obstruct reform by spreading disinformation. Critics have argued that the Care formula would disadvantage those who planned their retirement around the existing rules, particularly individuals who increased their contribution base during the final five years before retirement. Mr Julapun on Tuesday stressed that the regulation includes transitional measures to protect the rights of existing and soon-to-retire beneficiaries. Current pension recipients whose benefits would increase under the Care formula will receive the higher pension beginning in the month after the regulation takes effect. Those whose benefits would be lower under the new calculation will continue receiving their existing pension without any reduction. For insured workers who become eligible for an old-age pension within five years after the regulation comes into force, those whose pensions would decline under the Care formula will receive compensation for the difference on a sliding scale. The compensation will cover 100% of the shortfall in the first year, gradually declining to 20% by the fifth year. “The revised calculation method will ensure that insured persons under Sections 33 and 39 (of the Social Security Act) receive pensions that more accurately reflect the contributions they have made throughout their working lives,” said Mr Julapun. “It promotes greater fairness, balance and consistency with international standards adopted by many countries.”