MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY ----------------------- HOANG THI HONG HA LEGAL ASPECTS OF PENSION PRODUCT – REVIEW OF THE CLIENT’S RIGHTS AND TAX INCENTIVES RELATED TO VOLUNTARY PENSION INSURANCE BUSINESS MASTER THESIS IN LAW Ho Chi Minh City, May 2017 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com MINISTRY OF EDUCATION AND TRAINING UNIVERSITY OF ECONOMICS HO CHI MINH CITY ----------------------- HOANG THI HONG HA LEGAL ASPECTS OF PENSION PRODUCT – REVIEW OF THE CLIENT’S RIGHTS AND TAX INCENTIVES RELATED TO VOLUNTARY PENSION INSURANCE BUSINESS Major: Economic Law Code: 60380107 MASTER THESIS IN LAW SUPERVISOR: ASSOC. PHAM DUY NGHIA Ho Chi Minh City, May 2017 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com INDEX DECLARATION. V LIST OF DEFINITION AND ABBREVIATIONS. IX LEGAL ASPECTS OF PENSION PRODUCT – REVIEW OF THE CLIENT’S RIGHTS AND TAX INCENTIVES TO ENCOURAGE VOLUNTARY PENSION INSURANCE BUSINESS.
IX CHAPTER 1 INTRODUCTION. 1 CHAPTER 2 OVERVIEW INSURANCE BUSINESS: THE POLICY AND PENSION .1 POLICY AND ITS FEATURES .1 What’s life insurance contract .2 Features of life insurance contract.2 Utmost good faith .4 Assignment and nomination .5 Return of premium .2 PENSION POLICY AND ITS FEATURES .2 Legal characteristics of pension contract .3 PROCEDURE OF LAUNCHING PRODUCT .4 RIGHTS OF POLICY OWNER (CLIENT) TOWARD POLICY .1 Free-Look Provision .2 Entire Contract Provision .3 Grace Period Provision. 23 CHPATER 3 REVIEW THE CLIENT’S RIGHT OF TERMINATION/ CANCELLATION AND WITHDRAWAL .1 REVIEW OF TERMINATION/ CANCELLATION RIGHTS .1 Analysis of the current unsound regulations.2 Other policies reference .2 REVIEW OF THE RIGHT TO WITHDRAW MONEY IN ADVANCE .1 Analysis of the current unsound regulations.2 Other policies reference. 35 CHAPTER 4 REVIEW TAX INCENTIVE REGULATIONS APPLIED FOR CORPORATE AND EMPLOYEE CLIENTS BUYING PENSION PRODUCT .1 ANALYSIS OF THE CURRENT UNSOUND REGULATIONS – THE NEED TO ENCOURAGE VOLUNTARY PENSION PRODUCT.1 Corporate Income Tax (CIT) .2 Personal Income Tax (PIT) .2 OTHER POLICIES REFERENCE.
43 i LUAN VAN CHAT LUONG download : add luanvanchat@agmail.1 Corporate Income Tax (CIT) .2 Personal Income Tax (PIT). 46 CHAPTER 5 PROPOSAL ON LEGAL REFORM TO ENHANCE CLIENT RIGHTS AND TAX INCENTIVES FOR PENSION BUSINESS .1 TERMINATION/ CANCELLATION RIGHTS.2 RIGHTS OF WITHDRAW MONEY IN ADVANCE .1 Corporate Income Tax (CIT): .2 Personal Income Tax (PIT): .54 PENSION CONTRACT IN HONGKONG – PRUMYRETIREMENT RMB ANNUITY INCOME – GENERAL PROVISIONS .57 PENSION CONTRACT IN SINGAPORE - PRUGOLDEN INCOME .59 PROCEDURE OF APPROVED PRODUCT .61 ii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com DECLARATION I, HOANG THI HONG HA, trainee code: 7701240806A, a trainee of LLM 24 of Economic University in HCMC, an author of this Thesis on Legal aspects of Pension policy – Review of the Client’s rights and tax incentives to encourage voluntary pension insurance business (hereinafter called ―Thesis‖). I hereby declare that all content presented in this thesis is the result of personally independent research under the guidance of the Mentor. In the thesis there are used, quoted some ideas, scientific view of some authors.
These information sources are cited specific, accurate and verifiable. The data and information used in the thesis is completely objective and honest. Author HOANG THI HONG HA iii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com PREFACE In the first place, I would like to express my genuine appreciation to my Mentor, Professor Pham Duy Nghia, for his valuable commentaries, constantly guiding and encouraging me through the whole process of working on this thesis. I would also like to thank the Prudential Life Vietnam Company and Cathay Life Vietnam Company for their ideal working environment, for a practical repertory, for giving me a lot of practical experience, which is an important part of the success of this thesis.
In addition, I am also grateful to my esteemed chief, Mr. Robin, Director of Policy Administrative / Finance & Accounting / Legal Department of Cathay Life Vietnam, for his strong assistance in providing me the valuable data and documents in Taiwan. Nguyen Viet Hai, a former Secretary Deputy General of Insurance Association of Vietnam, it was a great experience and a great pleasure to work with you, for your worth sharing on life insurance market in Vietnam, particularly for the state policies under the regulator perspective. Last, but not least, I would like to offer my warm thanks to my colleagues, my friends and my family for being with me.
Ho Chi Minh City, May 2017 iv LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ABSTRACT Since 2013, Vietnam had adopted regulation to promote voluntary pension policy. Despite the high expectation, after more than three years of deployment, the market for pension insurance remains very limited. This thesis aims to explain the legal contracts which impede the development of pension insurance. The thesis also analyses the right of clients to terminate the pension contract and to withdraw money in advance of pension contract.
Finally, the thesis reviews tax implications on current policies of corporate income tax and personal income tax applied for corporate and employee clients. As a result, this thesis proposes that pension regulation should admit the client right of termination of pension contract; extend the client right of withdrawal of money in advance in any circumstances. And last but not least, tax policies should be adjusted to ensure the fair tax treatment between voluntary pension and social pension. In this thesis, research instruments are used including survey, statistics, comparison and analysis to support for the persuasion.
v LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com LIST OF DEFINITION AND ABBREVIATIONS Policy Owner / Policy Holder are organizations or individuals that enter into insurance contracts with insurance enterprises and pay premium. An insurance buyer may also be concurrently the insured or the beneficiary. The Insured / Life Assured means organizations or individuals that have property, civil liabilities and/or life are insured under insurance contracts. The insured may also be concurrently the beneficiary.
The Beneficiaries mean organizations or individuals designated by the insurance buyers to receive insurance money under person insurance contracts. Insurable interests mean the rights to ownership, the rights to possession, the right to use, the property rights; the rights and obligations to foster and provide financial support for insured objects. Insured events mean objective events mutually agreed upon by the parties or prescribed by law upon the occurrence of which the insurance enterprises shall have to pay the insurance money to the beneficiaries or pay indemnities to the insured. Premium means a sum of money to be paid by the insurance buyers to insurance enterprises according to time limits and by modes mutually agreed upon by the parties in the insurance contracts.
Pension insurance means a class of insurance in case where the insured person reaches a determined age shall be paid insurance money by insurance enterprise as agreed in the insurance contract. Surrender Value means an amount of money the Policy Owner will receive if the Policy Owner terminates the Policy while the Policy is on effective period. Free-look period / Cooling-off period means an individual life insurance policy typically includes a free-look provision, some- times referred to as a free-examination provision or a cooling-off provision, which gives the policy owner a stated period of vi LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com time—usually at least 10 days—after the policy is delivered within which to cancel the policy and receive a refund. In most jurisdictions, this period of time ranges from 10 to 30 days.
The free-look period begins on the date the policy is delivered to the policy owner, not on the date of issue. Insurance coverage is in effect throughout the free-look period or until the policy owner rejects the policy, whichever occurs first. Grace period means a length of time following each renewal premium due date within which the premium may be paid without loss of coverage. The specified time (often 31 days) following each premium due date during which the contract remains in effect regardless of whether the premium is paid.
Reinstatement means the conditions that the policy owner must meet for the insurer to reinstate a policy. Defined-benefit plan means a pension plan with a guarantee by the insurer or pension agency that a benefit based on a prescribed formula will be paid. Such plans can be fully funded or unfunded Defined-contribution means the contributions that the plan sponsor agrees to make to the plan. The benefit that a participant will receive is not determined in advance of the participant’s retirement but depends on the investment performance of the funds in the plan PAYG (Pay as you go) means a withholding tax which requires you to pay incremental amounts which accumulate towards your expected end of year income tax liability MOF: Ministry of Finance ISA: Insurance and Supervision Authority MOLISA: Ministry of Labor, War Invalid and Social Ware fares MOIT: Ministry of Industry and Trade CIT: Corporate income tax vii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com PIT: Personal income tax ULP: Universal life product ILP: Unit link life product viii LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CONTENTS LEGAL ASPECTS OF PENSION PRODUCT – REVIEW OF THE CLIENT’S RIGHTS AND TAX INCENTIVES TO ENCOURAGE VOLUNTARY PENSION INSURANCE BUSINESS CHAPTER 1 INTRODUCTION CHAPTER 2 OVERVIEW OF INSURANCE BUSINESS: THE POLICY AND PENSION POLICY 2.1 Policy and its features 2.2 Pension policy and its features 2.3 Procedure of launching product 2.4 Rights of client toward pension policy CHAPTER 3 REVIEW THE CLIENT’S RIGHT OF TERMINATION AND WITHDRAWAL OF MONEY IN ADVANDE 3.1 Review of termination rights 3.1 Analysis of the current unsound regulations 3.2 Other policies reference 3.2 Review of the right to withdrawal money in advance 3.1 Analysis of the current unsound regulations 3.2 Other policies reference CHAPTER 4 REVIEW TAX INCENTIVE REGULATIONS APPLIED FOR CORPORATE AND EMPLOYEE CLIENT BUYING PENSION PRODUCT 4.1 Analysis of the current unsound regulations – the need to encourage voluntary pension policy 4.2 Other policies reference 4.3 International reference ix LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CHAPTER 5 PROPOSAL ON LEGAL REFORM TO ENHANCE CLIENT RIGHTS AND TAX INCENTIVES FOR PENSION BUSINESS 5.2 Rights of withdrawal money in advance 5.3 Tax incentive policy x LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com CHAPTER 1 INTRODUCTION The rapid increase in the aging rate of global population has affected tremendously on economic, social and political situations of nations.
Vietnam is regarded as one of the countries with the population’s greatest aging pace which places first in Asia and seventh in the world. Vietnam’s remarkable economic growth which has been achieved in the past two decades has contributed vastly to the enhancement of citizens’ living standards which creates healthier lifestyles. This has led to the increase in life expectancy from 69.2 years in 2001 to 73. It is projected that this trend will continue to 80.1: Vietnam's life expectancy trend from 2001 to 2050 (years) 82.4 (Source: General Statistics Office, 2014) Consequently, the number of people aged range from 60 almost doubled between 1990 and 2015 (from around 5,6 million to approximately 9,7 million people) and are forecast to triple in the next 20 years.
Conversely, the number of newborns and under-15-year-old children fell sharply. The graph below shows the proportions made up by people aged above 60 and fewer than 15 during the period from 1990 to 2025. 1 LUAN VAN CHAT LUONG download : add luanvanchat@agmail.2: Vietnam's age proportion trend from 1990 to 2025 (%) 40 35 30 Percentage 25 20 15 10 5 0 1990 2000 2005 2010 2015 2020 2025 Under 15 37.5 (Source: World Bank, UN, BMI, 2014) As it can be seen, Vietnam has experienced the demographic transition from a young to an aging population within the last 25 years. Although life expectancy increases over time, it is reported that elderly people have been living under limited health and financial conditions.
According to Vietnam Association of the Elderly, 73% of the elderly do not have social insurance/pension benefit.