Vietnam Revamps Pension Rules to Attract Long-Term Capital

Vietnam's new decree on supplementary pension insurance, alongside proposed amendments to personal income tax policies, is set to bolster the country's pension fund market, aiming to diversify the social security system and attract long-term investment capital.

The government recently issued Decree 85/2026/NĐ-CP, which replaces Decree 88/2016/NĐ-CP after nearly a decade of pilot implementation. The new regulation is a key step in implementing the 2024 Social Insurance Law and provides a clearer legal framework for developing a supplementary pension pillar to exist alongside the state's mandatory social insurance system.

Decree 85 signals a significant shift toward a more market-oriented approach. During its drafting, the Ministry of Finance considered a provision requiring a portion of contributions to be used for annuity insurance products to guarantee a minimum retirement payout. This was ultimately removed over concerns it would conflict with the voluntary, market-based nature of the funds, potentially increasing costs and creating disputes.

Instead, the decree emphasizes transparency and risk disclosure. Fund management companies, distributors, and consultants are now prohibited from marketing these products in a way that might cause confusion with the state pension system or commercial life insurance. This is intended to mitigate the risk of participants mistakenly viewing them as guaranteed-return products.

The investment framework has also been made more flexible. An initial proposal to require all corporate bonds in pension fund portfolios to be backed by collateral or payment guarantees was revised. The new rules permit funds to invest in listed corporate bonds that have been assessed by independent credit rating agencies.

Phạm Thị Thanh Tam, deputy director of the Department of Financial Institutions under the Ministry of Finance, stated that developing supplementary pension funds is necessary to achieve the dual goals of enhancing social security and mobilising resources for sustainable economic growth.

A small market

Despite recent expansion, Vietnam's supplementary pension fund market remains modest in scale. Data from the Ministry of Finance shows that by the end of 2025, only four fund management companies had been licensed to manage these funds: Dragon Capital Vietnam, SSI Asset Management, MB Capital, and Vietcombank Fund Management Company.

Together, these four firms managed seven supplementary pension funds with total net assets exceeding VNĐ2.2 trillion (US$84 million) and nearly 28,600 participants. This represents a more than 42-fold increase from five years prior.

However, Associate Professor Dr Trần Thị Thanh Nga from the Academy of Finance noted that the sector is still in its infancy when measured against the size of Vietnam's economy, labour force, and long-term financing needs. "The asset base is small, participation is limited, and supplementary pension funds have yet to become a widely used savings channel for workers," Nga told thoibaonganhang.vn.

Trần Dũng Hà, deputy director of Ho Chi Minh City Social Security, echoed this sentiment, observing that participation levels remain low after nearly 10 years, suggesting caution from both employers and employees. Hà added that the current framework appears to focus on well-performing enterprises, and the fact that workers can only participate through their employers represents a "bottleneck that needs to be addressed if participation is to expand."

Beyond social security, a more developed pension fund industry could provide a crucial source of long-term capital for the economy. While banks remain the primary suppliers of medium- and long-term financing, a larger pension sector could help create a new class of institutional investors for the capital market.

Taxes, trust key to pension fund growth

Experts believe that despite the new regulations, a lack of sufficient tax incentives could hinder broader participation. Current rules allow contributions to supplementary pension funds to be deducted from taxable income up to VNĐ1 million ($38) per month. This threshold has not been updated for years and is widely seen as inadequate given rising incomes and living costs.

In a draft amendment to personal income tax laws, the Ministry of Finance has proposed raising the deductible limit to VNĐ3 million per month. The goal is to encourage long-term retirement savings and alleviate future pressures on the social security system.

However, Nga argued that stronger incentives may be necessary for the funds to gain widespread acceptance. She pointed out that in many countries, successful supplementary pension systems are supported by meaningful tax incentives, convenient enrollment mechanisms, and investment products tailored to different stages of a worker's career.

Building public confidence is also seen as critical. Many Vietnamese savers still prefer traditional assets like bank deposits, gold, and real estate over long-term financial products. The country's supplementary pension industry is relatively new and has not yet built a long track record of wealth accumulation.

To attract broader participation and become a meaningful source of long-term capital, the industry will need to build trust through enhanced transparency, reasonable management fees, and stable, long-term investment performance.