Pen­sion re­form to ben­e­fit se­nior cit­i­zens

China Daily (Hong Kong) - - VIEWS -

Pen­sions not only help se­nior cit­i­zens lead a de­cent life, but also can pro­mote re-em­ploy­ment. Since pen­sions are im­por­tant public goods, es­pe­cially in an ag­ing so­ci­ety, it is im­por­tant to re­duce the risks as­so­ci­ated with them by, among other things, main­tain­ing a sub­stan­tial ba­sic pen­sion fund and fur­ther strength­en­ing the pen­sion sys­tem.

The pen­sion re­form, as part of the com­pre­hen­sive re­forms launched by Pres­i­dent Xi Jin­ping, is aimed at im­prov­ing peo­ple’s well-be­ing. The com­pre­hen­sive re­forms also show the cen­tral lead­er­ship, led by Xi, is com­mit­ted to im­prov­ing peo­ple’s liveli­hoods.

Thanks to the pen­sion re­form, by the end of last year, China had in place an in­sti­tu­tional old-age in­sur­ance frame­work cov­er­ing 380 mil­lion em­ploy­ees na­tion­wide, and a ba­sic pen­sion in­sur­ance sys­tem cov­er­ing 500 mil­lion ur­ban and ru­ral res­i­dents.

Be­sides, the ac­cu­mu­lated bal­ance of the pen­sion in­sur­ance fund in­creased from 99.25 bil­lion yuan ($14.71 bil­lion) in 2008 to 4.40 tril­lion last year, and the au­thor­i­ties have taken sev­eral mea­sures, in­clud­ing in­vest­ing the ba­sic pen­sion in­sur­ance fund and al­lo­cat­ing State-owned cap­i­tal to the na­tional pen­sion in­sur­ance fund, to im­prove the pen­sion sys­tem.

By 2025, when China is ex­pected to en­ter a deeply ag­ing so­ci­ety, the ra­tio of the pop­u­la­tion pay­ing pen­sion pre­mi­ums and those re­ceiv­ing pen­sions will be about 2.5:1, which will de­cline fur­ther in the fu­ture. The growth rate of the ba­sic pen­sion in­sur­ance fund ex­pen­di­ture is now higher than the in­come, which is un­likely to change in the near fu­ture given the ag­ing pop­u­la­tion trend in China.

A ma­jor prob­lem in an ag­ing so­ci­ety is the con­flict of in­ter­ests among gen­er­a­tions, which be­comes in­creas­ingly in­tense with work­ing-age peo­ple be­ing made to pay higher taxes to help sus­tain the ba­sic pen­sion fund. So the au­thor­i­ties should strike a bal­ance be­tween em­ploy­ment and pen­sion, and in­come and ex­pen­di­ture of the pen­sion fund. Which makes ad­just­ment of the pen­sion struc­ture an im­por­tant task for the au­thor­i­ties.

Ac­cord­ing to last year’s data, China has enough pen­sion fund to pay old-age pen­sion na­tion­wide for more than 17 con­sec­u­tive months, re­flect­ing the fund’s sta­bil­ity. But since China will be­come a deeply ag­ing so­ci­ety by 2025, the au­thor­i­ties have to com­pre­hen­sively re­form the pen­sion sys­tem in eight years.

First, they have to build a large enough ba­sic pen­sion fund to main­tain so­cial sta­bil­ity and fair­ness. For which, they have to con­sol­i­date the pay­ment base of pen­sion in­sur­ance fund, ad­just the pen­sion rate to make clear the ex­tent of the re­spon­si­bil­i­ties of the State, en­ter­prises and in­di­vid­u­als, ex­tend so­cial pool­ing of pen­sion in­sur­ance fund from the pro­vin­cial to the na­tional level, raise the re­tire­ment age, and im­prove the na­tional so­cial se­cu­rity re­serve fund sys­tem.

Sec­ond, the au­thor­i­ties should en­cour­age all em­ploy­ers, in­clud­ing en­ter­prises and govern­ment in­sti­tu­tions, to pay sup­ple­men­tary pen­sion to their re­tired em­ploy­ees. Rais­ing the value of pen­sion fund of en­ter­prises through chan­nels such as in­vest­ment is very im­por­tant given the ris­ing la­bor cost and in­ten­si­fy­ing com­pe­ti­tion among en­ter­prises. The fi­nan­cial ca­pa­bil­ity of public in­sti­tu­tions to pay sup­ple­men­tary pen­sion is lim­ited. So the sup­ple­men­tary pen­sion could be linked to the hous­ing fund, as it would re­duce the rate of pen­sion the in­sti­tu­tions pay to their em­ploy­ers and thus ease their fi­nan­cial pres­sure.

Third, the au­thor­i­ties should en­cour­age self-em­ployed in­di­vid­u­als to in­vest in as­sets, in­clud­ing old-age pen­sion funds, real es­tate and long-term nurs­ing in­sur­ance plans, so that it gen­er­ates in­come to sus­tain them in old age. They should also be en­cour­aged to pur­chase an­nu­ity and old-age nurs­ing in­sur­ance. One form of en­cour­age­ment could be pref­er­en­tial tax­a­tion poli­cies for such in­di­vid­u­als.

The in­sti­tu­tional frame­work of China’s pen­sion sys­tem has been im­prov­ing, and its ba­sic pen­sion in­sur­ance fund has re­mained sta­ble. And its sus­tain­able devel­op­ment will help the au­thor­i­ties es­tab­lish a uni­fied in­for­ma­tion sys­tem, as well as man­age­ment and ser­vice sys­tems, in order to build a top-level pen­sion sys­tem to cope with the pres­sure of ag­ing so­ci­ety.

... China’s pen­sion sys­tem has been im­prov­ing, and its ba­sic pen­sion in­sur­ance fund has re­mained sta­ble.

The au­thor is di­rec­tor of the School of Public Pol­icy and Man­age­ment at Ts­inghua Univer­sity.

Yang Yan­sui

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