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Pensions for Expats in Thailand

Submitted: August 2014

Thailand has a three-pillar pension system, whereby:

So far, expats are primarily concerned with the first and the third pillar. However, there are proposals to introduce a National Pension Fund (NPF) in the second pillar. The NPF is expected to complement the first and the third pillar for all workers in the formal sector.

 

Thai social insurance

All workers in the formal sector should normally be signed up for coverage by the Social Security Office (SSO). Contributions are deducted from employees’ pay and remitted to the SSO by their employer. Contributions count towards a variety of benefits, including old-age insurance. The SSO’s old-age insurance scheme is:

So far, SSO pension provision has been fairly generous. Its essential features are as follows:

It can be reasonably expected that this scheme is going to be less and less generous in the future, as Thailand’s ageing population is likely to put considerable pressure.

So far, workers in the informal sector are not covered by the SSO. In Thailand, the informal sector (22 million workers) is still more than double the size of the formal private sector (9 million workers).

 

Private pension schemes

There are two types of private superannuation schemes in Thailand:

Private pension schemes are on a defined-contribution basis. Pay-outs can be paid as an annuity or as a lump-sum.

 

Occupational schemes

If you have come to Thailand as an expatriate employee, you may have been enrolled for a company pension scheme. In Thailand, such schemes are called “Provident Funds”.

Just like the basic SSO coverage, both employers and employees have to contribute on an equal basis. The contribution rates may be much higher though. Under Section 10 of the Provident Fund Act, companies may push the rate up to 15%. Contribution rates above 15% require prior approval from the Ministry of Finance.

Financially speaking, a Provident Fund may have a lot of administration charges and little control over how your money is going to be invested. In that respect, it is less attractive than investing on your own on the stock market. However, some Provident Funds may give some level of discretion to their members (e.g. a high-risk, high-return strategy).

If you leave your company and terminate membership of your Provident Fund, you may not be able to claim back the full amount of employer contributions made so far. This is because there is a vesting period before these contributions are definitively yours. The vesting period may vary from one Provident Fund to another, but they typically do not exceed 10 years.

It is possible to step down while retaining membership of the company’s Provident Fund.

 

Retirement Mutual Funds (RMFs)

If you have no occupational pension scheme, or if you believe it is not enough, you can get to your Thai bank and invest in an RMF.

 

Taxation (Provident Funds)

Provident Funds are eligible for the following tax benefits:

For Provident Funds, pay-outs are exempt if they are paid once the recipient:

Partial tax exemption may be available if you do not meet the conditions for a full tax-exemption on the pay-outs.

 

Taxation (RMFs)

RMFs are subject to the same tax deduction as Provident Funds at contribution-level, and pay-outs are totally exempt.

In order to qualify for RMF tax relief, you must:

A maximum grace period of one year may be acceptable, e.g. if your disposable income temporarily shrinks.

If you fail to meet any of the eligibility requirements, the entire tax relief will be reversed with retroactive effect. Late payment interest (a “monthly surcharge”) may be due at a rate of 1.5% per month (or part thereof).

 

International superannuation planning

Many jurisdictions offer private tax-efficient pension plans. Therefore, they are heavily regulated in order to avoid any undue tax base erosion. However, tax neutrality should not be taken for granted in cross-border situations, and there are double taxation risks. Thus, you should check:

As a general rule, cross-border superannuation planning is always on a case-by-case basis. Consequently, it is strongly recommended to seek specialist advice regarding this matter.

 

 




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