Pension fund cake must be bigger so all regions get reasonable slice

THE STATE COUNCIL, China’s Cabinet, will start to adjust the pension funds among provincial-level regions on July 1 to ensure the sustainability of the fund, particularly in the less-developed regions, and make the pension level more balanced among different regions, according to a notice issued recently. Beijing Youth Daily comments:

This move will, temporarily at least, ease the concerns of those provincial-level governments that would otherwise be unable to meet their pension fund obligations

China’s fast-aging society has put considerable pressure on the pension funds managed by provincial-level governments. Despite this, the robust economic growth in the coastal regions has provided sufficient revenue for these regions to meet their pension fund requirements.

However, in the regions where local economies face downward pressure, it is becoming increasingly difficult for the local governments to meet their pension fund obligations, and the pension gap has become wider among different regions. The bankruptcy of local pension funds in these regions would only be a matter of time if the central government did not extend a helping hand.

The plan on the basis of not increasing the burden on society, aims to more reasonably balance the regional funds by adjustments of the central endowment insurance fund.

Yet the central authorities’ lifeline is still something easier said than done. There are big differences in the way the provincial pension funds are managed, and the pension payouts, and the expenditure in different provinces. If the central authorities want to make pensions “more balanced”, they will have to unify these pension systems.

Also, it is unrealistic for the central authorities to simply move money from the left pocket to the right pocket by directly using the revenue from the betteroff regions to ease the shortage of funds in the poorer regions, as this will predictably meet resistance from the rich regions.

Instead, the central government should make a bigger cake by allocating some State-owned capital to the social security fund to invest and then tilt more of the pension fund surplus it manages to help the poorer regions.

It should also speed up the entry of private companies into the pension market.