How does the 6% increase in regional minimum wage from July 1 affect pensions?

The draft decree regulating minimum wages for employees working under contracts is being consulted with relevant ministries and branches.

The draft decree proposes a 6% increase in the minimum wage from July 1 compared to the current level. With this proposal, the salary in region I will increase to VND4.96 million; region II to VND4.41 million; region III to VND3.86 million and region IV to VND3.45 million.

Along with the monthly minimum wage, the hourly minimum wage will also increase by 6% from mid-2024. Specifically, region I will increase to VND23,800/hour; region II to VND21,200/hour; region III to VND18,600/hour; and region 4 to VND16,600/hour.

This regional minimum wage is also considered to basically ensure the minimum living standard in 2025, meaning that the policy-making agency has calculated a part of the CPI of 2025 into the minimum living standard so that workers can enjoy it from mid-2024.

According to Article 56 of the Law on Social Insurance 2014, the pension level when paying compulsory social insurance is calculated according to the formula: Monthly pension = Benefit rate x Average monthly salary level paying compulsory social insurance.

In particular, the monthly pension rate of employees eligible for pension for male employees is 45% for 20 years of social insurance contribution, then, for each additional year, an additional 2% is calculated. The maximum benefit level is 75%.

Female workers who have paid social insurance for 15 years will receive 45%, then 2% for each additional year. The maximum benefit is 75%.

In case of early retirement due to labor loss, each year of retirement will be deducted 2% from the total pension rate (with odd periods of less than 6 months, the pension rate will not be reduced, with odd periods of 6 months or more, the reduction will be 1%).

Thus, pension is calculated based on the number of years of social insurance contributions and monthly salary.

Therefore, if the regional minimum wage increases, it can increase the average monthly salary for social insurance contributions of employees. Thus, if they are eligible for pensions later, employees will also benefit from a higher average salary for social insurance contributions.