The challenges for the Chinese
pensions-lessons from Europe?
Danping Yan
Huazhong University of Science & Technology
Pension reforms in China
• The context for pension reforms in China
- Remarkable economic growth
- Prosperity is unequally distributed
- China is now aging rapidly
• Three pillars of China’s urban pension system
- Social basic pension scheme
- Occupational supplementary pension scheme (annuity)
- Individual commercial pension scheme
• Pension system before 1982
- Social Security Regulation in 1951 is the formal start of the state
pension system.
- The state pension system suffered a breakdown during the Cultural
Revolution in 1966-76.
- Government was forced to allow individual enterprises to run their own
pension programmes.
•
Pension reforms in China
• Reforms in the late 1980s and early 1990s
- In 1986 State Council Document 77 encouraged pension pooling across state
enterprises
- In 1991 State Council Document 33 called for individual contributions by all
workers in state-owned and collective enterprises in urban areas.
- State Council Document 33 and the Ministry of Labour Document 464 called for
the establishment of three tiers in the pension system.
• Reform of 1995
In 1995 State Council Document 6 required a transition from PAYG pension
system to a system combining the social pooling with individual accounts.
• Reform of 1997
In 1997 State Council Document 26 defined more clearly the direction of pension
reform in Pillar 1 : a two-tier pension system combining social pooling and
individual accounts was to be instituted by 2000.
• The most recent reform
A pilot programme is being run in Liaoning province.
The main problems facing China’s
Urban pension system
• “Empty accounts”
• Low Coverage Ratio
• The “implicit” pension debt
• High contribution rate
Pension reforms in Europe-lessons
to follow or avoid
• Background of European pension reform
- Population aging
- Pressure on public expenditure
• Common trend of European pension reform
- The objective of the reforms has been to cut the future expenditure on
PAYG pensions;
- Many countries have raised the retirement age;
- Funded pension systems have been changed from a defined benefit to
a defined contribution one;
- State pension schemes have been scaled down and individual savings
accounts under commercial management have been promoted;
- Tax incentives have been introduced to speed the development of
supplementary funded pensions;
- The EU’s pension systems have not succeeded in ending gender
inequalities in old age.
Options for reform of the Chinese
pension system
• Separating individual accounts from social
pooling
• Raising the retirement age
• Increasing pension coverage
• Promoting occupational supplementary
pension scheme
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The challenges for the Chinese pensions