Pen­sion sys­tem needs re­form

China Daily (Canada) - - FRONT PAGE - By LI YANG in Shang­hai

If the Chi­nese gov­ern­ment does not carry out a timely and all-around re­form of its pen­sion sys­tem, the widen­ing debt gap of China’s pen­sion in­surance cap­i­tal will pull the gov­ern­ment into a for­mi­da­ble debt cri­sis and threaten so­cial se­cu­rity, ac­cord­ing to a re­port.

The Chi­nese Academy of So­cial Sciences, a top think tank for the cen­tral gov­ern­ment, is­sued a re­port on China’s so­cial se­cu­rity on Dec 29, not­ing the gap in ur­ban res­i­dents’ ba­sic pen­sion sys­tem by the end of last year was 86.2 tril­lion yuan ($14.37 tril­lion).

Work­ers re­tir­ing be­fore the late 1990s, when a ba­sic pen­sion sys­tem was built up na­tion­wide, need not pay their pen­sion in­surance, which was done by the state, and ac­tu­ally paid by the peo­ple re­tir­ing after the 1990s. The gap be­comes wider as more and more peo­ple reach their re­tire­ment age.

By 2020, about 18 per­cent of China’s pop­u­la­tion will be above 60 years old, and the fig­ure will rise to over 30 per­cent in 2050.

“If we do not re­form the old sys­tem, the gap will be­come big­ger and big­ger,” Vice-Premier Ma Kai warned in his re­sponse to queries on the po­ten­tial debt risks of the Chi­nese gov­ern­ment. This is the first time the cen­tral au­thor­ity clearly ac­knowl­edged the ex­is­tence of the big gap and the wor­ri­some trend if the prob­lem is unchecked.

But re­form is not that easy to do, be­cause it is par­tially a his­tor­i­cal is­sue, and in­creas­ingly a should not just try to squeeze the work­ers, but also take ac­tions to make the civil ser­vants pay their pen­sion in­surance as early as pos­si­ble. The 40 mil­lion civil ser­vants and staff work­ing for pub­lic in­sti­tu­tions need not pay their pen­sion in­surance un­der the cur­rent sys­tem. But their pen­sion is about two to three times higher than av­er­age wage earn­ers. If they can pay their pen­sion in­surance as oth­ers, they can con­trib­ute 280 bil­lion yuan each year to fill the gap.

The gov­ern­ment should also in­crease its pay­ment pro­por­tion in the port­fo­lio of the pen­sion sys­tem. Statis­tics show so­cial se­cu­rity only ac­counts for 12 per­cent of the Chi­nese gov­ern­ment’s ex­pen­di­ture, com­pared with 30 to 50 per­cent for de­vel­oped coun­tries. If the Chi­nese gov­ern­ment can in­crease the pro­por­tion to 30 per­cent, it can con­trib­ute more than 3 tril­lion yuan each year to fill the gap.

State-owned en­ter­prises also need to in­crease their con­tri­bu­tion to re­pay the coun­try’s so­cial se­cu­rity debt. They make more than 4 tril­lion yuan’s profit each year, only hand­ing out about 5 per­cent of the profit to the gov­ern­ment. If they can in­crease the ra­tio to about 20 per­cent, an in­ter­na­tional con­ven­tional level, they can con­trib­ute about 1 tril­lion yuan each year to fill the pen­sion in­surance gap.

Last but not least, the Chi­nese gov­ern­ment must im­prove its man­age­ment of such a huge cap­i­tal pool of its pen­sion in­surance, pre­serv­ing and in­creas­ing the value of the im­por­tant money.

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