New pension scheme to fill gap

Transfer of SOE assets will curb imbalance: experts

“It is a part of a longterm program to reform the current insurance system in an effort to provide a sustainable source for pension funds.” Xu Yating China economist at IHS Markit

China’s latest pilot program of transferring State- owned assets into the pension fund will help tackle the pension gap nationwide, and is also part of an effort to coordinate pension payments at the national level, experts said on Monday.

The State Council, the country’s cabinet, unveiled the program to transfer an initial 10 percent of equity in State- owned enterprises ( SOEs) to the national pension fund in a document published on the website of the central government on Saturday.

The program covers all the central and local SO Es as well as government-supervised financial institutions.

As of the end of 2016, the number of people over 60 years of age was 230.86 million, accounting for 16.7 percent of the total population, according to an annual report released by the Ministry of Civil Affairs in August. The rapidly aging population is putting increasing pressure on pension funds.

From 2002 to 2016, local governments spent nearly 3.2 trillion yuan ($ 482.8 billion) to supplement pension funds, and the subsidies from the central government reached 651 billion yuan in 2016 compared to 40.8 billion in 2002, Xu Yating, China economist at IHS Markit, told the Global Times.

“Over 20 regions run a public pen- sion fund deficit excluding fiscal subsidies, and some northern regions even run a deficit after including fiscal surplus,” she said, noting that the situation varies, with underdeveloped and labor- exporting regions running particularly large pension deficits.

For instance, some northeastern provinces – which have a larger number of SOE retirees and laid- off workers who are heavily reliant on the fiscal subsidies to make up their pension deficit – are suffering the most from a slide in fiscal revenue, Xu noted.

For some provinces, like Northeast China’s Heilongjiang, dealing with the pension deficit has become a thorny issue in recent years, Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, told the Global Times on Monday. “Even fiscal subsidies could not meet the demand for pension fund spending anymore,” he said.

“Currently, the province has an estimated pension fund debt burden of more than 20 billion yuan, which weighs heavily on the working generations,” Dong noted.

If the workforce shrinks, it will become an even heavier burden for the local government and even harder to make up the shortfall, he said.

The revenue of the corporate pension fund in Heilongjiang reached 89 billion yuan in 2016, but local authorities spent over 121 billion yuan on pension payments, Guangdong- based Nanfang Metropolis Daily reported on November 11, citing a report from the Ministry of Human Resources and Social Security.

Other provinces facing the same pension fund deficit include Northeast China’s Liaoning Province and North China’s Hebei Province, Dong said.

Long- term plan

The new pilot program will allow retired workers to benefit from dividends generated by SOEs, while central and local pension funds will hold stakes in those entities, according to the document. It also noted that the pension funds, as major shareholders, will not be allowed to sell shares for at least three years.

However, the move is unlikely to tackle the pension fund shortfall in the short term, because only 10 percent of SOEs’ equity will be transferred and the income will mainly come from dividends instead of selling SOE assets, Xu noted.

“It is a part of a long- term program to reform the current insurance system in an effort to provide a sustainable source for pension funds,” she said.

There might be an exception in the case of Heilongjiang, which has no surplus on its balance sheet and needs more sustainable pension fund sources, Dong noted.

“I believe that the province might be allowed to sell shares to make up the shortfall within three years,” he said.

Fill the gap

The new program is expected to add about 3 trillion yuan to the pension fund over the next year, Dong noted.

“It will also help finalize the coordination of the pension fund scheme at the national level [ by adding] more abundant sources,” he said.

China will take steps in 2018 to coordinate pension funds at the national level and build up a sustainable pension fund system, which will also tackle the regional imbalance, Nanfang Metropolis Daily reported on November 4.