From October 1, all busineses under Labour Law will be obliged to pay four per cent of salaries as pension contributions. Two per cent is the obligation of the employer, with employees obligated to pay the remainder.
To get more insights before the new system comes into force, The Post sat down for an exclusive interview with Heng Sophannarith, Deputy Director General of the National Social Security Fund (NSSF).
What is a pension?
Of course, you may not be familiar with the term, but we have all heard of retirement benefits. In the past, there was a lot of talk about allowances which we would receive when we cease working. The two are the same. It is an allowance for when you are retired.
Which institutions are obligated to contribute towards pensions?
The payment of pension contributions is compulsory for all employers and employees. All industries, whether air staff, seafarers or domestic workers, are obliged to pay jointly to the NSSF.
Non-government organisations and civil society organisations have the same obligations, provided they have employees who are salaried. Those who work outside the system will not yet pay contributions to the NSSF. We refer only to those who are covered under the Labour Law.
Are there different types of pensions?
There are three kinds of pensions.
The old-age pension refers to the money that people receive when they turn 60. If he or she makes pension contributions until retirement age, when they retire, they will receive monthly payments.
The disability pension will be paid in the case of early retirement caused by accident or illness.
The other is the survivor’s pension, which means that the next of kin of a pension contributor may be paid the benefits owed to their deceased family member. A cremation allowance will also be paid.
What are the requirements to receive a pension from the NSSF?
All members of the NSSF are entitled to an old-age pension if he or she meets the conditions of being at least 60 years of age and of having made contributions for at least 12 months.
In order to receive an invalid pension, the member must have made contributions for at least 60 months before the accident or diagnoses that prevents them from continuing to work.
For the survivor’s pension, if the member has made less than 60 months of contributions before passing away, the spouse or dependent child will receive the benefits only the spouse can produce a marriage certificate and has no income.
A dependent child must be under 18 years of age, unmarried and with no income. If the child of a member of a deceased NSSF member has a chronic illness or disability, he or she will be provided the pension for life.
How can a disability pension be claimed?
This disability pension is paid after a member has fallen ill or had an accident which means they will be unable to return to work. They should fill out an application form and apply. We will assess each application on a case by case basis.
How much should a member pay?
Under the new law, the minimum obligated wage is set at 400,000 riel and the highest obligated wage is 1.2 million riel. The pension contribution is set at four per cent for the first five years, with the employer paying two per cent and the employee paying the balance. This contribution will increase to eight per cent in the next 5 years.
Should individuals in the private sector pay more than the legal minimum?
A member of the private sector can request to pay more than the minimum. The member must come and apply directly with NSSF to select their contributions and understand the benefits that they will be entitled to.
How does the NSSF calculate the deductions and amount of pension paid?
If a members salary is low, their pension payments will be lower than those who have contributed more. Another factor of course, is the number of contributions a member has made. If an employee makes regular contribution from the age of 20 until retirement age, they will receive more than a person who just began making payments.
I want to emphasize that of the four per cent, the employee pays only two, so the employer is subsidising the pension. When a member retires, they get the whole four percent, and the employer gets nothing.
A simple example I can give you is an employee who earns a salary of 1.2 million riel and saves 4 per cent in the bank each month from the age of 20. At current interest rates, he will receive $60 to $70 a month in payments when he retires.
However, if he contributes to the NSSF, the amount could be as high as $172. This is a large difference.
What should the institutions that are responsible for payment do?
They do not need to worry. Before October 1, we will send new forms to all businesses to make it easy for them to implement. Companies that have not yet registered with the NSSF are obliged to register no later than 30 days after the announcement of the law coming into force. Companies which are already registered with the NSSF for health care and occupational risk are automatically included in the system.
If a member of the NSSF pays this contribution for a period of time and then resigns, is the pension still valid?
In the event that a member of the NSSF resigns, we assess whether they have begun employment with another company. If they have, then their new employer will continue to make contributions for them.
If he or she quits their job and no longer works in the private sector, then they may apply to the NSSF to receive what we call old age benefits. This is a one off payment of contributions that is paid to those who do not meet the requirements for receiving the old age pension.
What will the government do with the contributions from businesses during the period before an employee begins collecting a pension?
According to the law, contributions received are entirely reserved for return to NSSF members, although each section will have operating expenses.
At the NSSF, all financial activities are carried out through the banks. There will be no cash held by the NSSF. The money will be kept with various banks to ensure it is earning interest.
In the future, we will establish an investment commission, which will discuss ways to invest the money and earn a greater return that which banks can offer.