China moves to make pension system fairer

37 million govt employees must now contribute to retirement savings fund
By Esther Teo, China Correspondent In Beijing, The Straits Times, 16 Jan 2015

AMID broader reforms to its pension system as China strains under the weight of a rapidly ageing population, the country has, for the first time, made some 37 million government workers chip in to the fund.

In new details released on Wednesday, Beijing said it has abolished its dual-track pension system that previously favoured civil servants and discriminated against private-sector workers, in a bid to establish a fairer retirement savings scheme, in response to growing public anger.

Employees with government agencies, Communist Party organs and public institutions must now contribute 8 per cent of their salary to personal pension accounts, while their employers must put into a pooled fund a sum amounting to 20 per cent of each employee's wages. Employees must also contribute 4 per cent of their salaries to an "occupational annuity" system, a form of supplementary pension insurance, and their employers 8 per cent.

Previously, government workers made no contribution to their retirement savings, yet received pensions of about 90 per cent of their pre-retirement salaries.

This fanned public resentment, as those in private firms who made such contributions received a lower pension.

Experts say the push to establish a unified pension scheme is meant to reduce social inequality, but also comes amid wider reforms as China strains under a silver tsunami that is putting increasing pressure on its coffers.

The Chinese Academy of Social Sciences (CASS), for instance, has estimated that a pension shortfall of up to 802 trillion yuan (S$173 trillion) might accumulate by 2050 - over 14 times the size of the country's 2013 gross domestic product.

Professor Zheng Bingwen, director of the World Social Insurance Research Centre at CASS, said the new policy was a "historical improvement and would give a greater sense of security". "But systemic problems in the pension system, such as low returns on investment, have not been addressed and in this regard, the reform has not met expectations."

While the news has cheered private-sector workers as they saw the system as more equitable and are hoping that their pensions might increase, civil servants are closely watching to see how the policy might affect them.

With a monthly income of just 4,000 yuan, Ms Lin Anni, 32, who lives in the northern Inner Mongolia region, has been worrying about how these reforms might affect her take-home pay.

"The contribution might not be much but we are worried that there might still be some impact, especially since both my husband and I are civil servants," she said. "While we understand the rationale behind it, we can't help but be concerned."

Experts say the impact on government workers is likely to be mitigated by other measures - like the occupational annuity or a pay rise - as the pension gap is likely to be reduced by bringing up the pensions in the private sector rather than adjusting those of civil servants downwards.

"Salaries of employees will also not be affected much as it will be the firms that will mostly bear the cost of this," said Prof Zheng.