Pensions needed as elderly population soars
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Shanghai Daily, October 12, 2011
While state pensions are woefully inadequate in urban areas, they're virtually nonexistent in the villages.
"The biggest challenge is to create some degree of equality between rural people and urban people," says Pieter P. Bottelier, professor of Chinese studies at Johns Hopkins University in Washington, DC.
Most of China's work on pension reforms has focused on urban areas, where workers once enjoyed relatively generous cradle-to-grave benefits at state-owned companies. Since state enterprise reforms began in the 1980s, however, local governments have taken up the responsibility for managing basic pension systems.
In 1997, China launched a pay-as-you-go system so employers pay 20 percent of employees' salaries into pension accounts while employees pay 8 percent of their salaries every month, for a minimum of 15 years.
The program is based on "defined benefit" formulas, so that when they retire (at 60 or 65, depending on the sector), employees receive a predetermined monthly income based on tenure, salary and age regardless of how their investments have performed.
Part of the problem is that while the central government sets the policies, it's up to local governments to run the programs, leaving a mish-mash of practices. "China's pension system is so fragmented," says Ce Shen, a professor of social work specializing in China's pension system at Boston College. The ideal, he says, would be to set up a unified, national pension system.
Jackson says that compared with the urban schemes, implementing rural schemes to accommodate migrant and casual labor is a different challenge altogether. "China has such a large informal sector," he notes. "It is very difficult to force compliance when workers do not have formal contracts or were hired casually."
According to the country's Ministry of Human Resources and Social Security, 257 million Chinese were enrolled in basic urban pension programs as of the end of 2010, while 102.7 million rural Chinese were part of a rural pension program launched in 2009.
While the problem of providing for urban workers is daunting, it pales in comparison with dealing with China's 242 million migrant workers when they retire.
The rural pension program launched in 2009 consists of two tiers - the first is guaranteed and paid by the central government at a rate of 55 yuan a month, and the second is supported by individual contributions ranging from 100 yuan to 500 yuan a month.
But most migrant workers balk at paying a contribution of even just 100 yuan. "Even the lowest pension premium is too high for them," says Du Peng, director of the Gerontology Institute at Renmin University in Beijing.
Adapted from China Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. To read the original, please visit: http://bit.ly/pJjE84
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