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China may consider flexible pension system

Xinhua, June 7, 2012

• A Chinese government agency has revealed that it will propose a more flexible pension system to central authorities at an appropriate time to keep a balance between employment and expected shortfall in retirement payments.

  The Ministry of Human Resources and Social Security said in a written statement posted on its website Wednesday that the ministry is conducting research into the retirement and pension system, and will submit the proposal at an appropriate time after listening to comments from all circles.

  In China most men retire at 60 and women at 50. And China is facing a ballooning deficit in the country's retirement pension funds due to an aging population.

  Almost all employees in China, in both private and state-owned organizations, have an individual pension account, into which both employee and employer have to make a monthly contribution. The employee can not withdraw any funds until he retires.

  However, in line with current contribution ratio, the pension funds can only pay women about 40 percent of their working wage monthly for 15 years after retirement.

  "From an academic view point, to gradually raise the retirement ages is an inevitable choice due to increasing life expectancy," Zheng Chenggong, a professor with Renmin University of China, told Xinhua on Wednesday.

  Some say raising the retirement age will only worsen the unemployment situation since generally labor supply has been exceeding demand in China.

  "If the retirement ages remains unchanged, the current pension system will be unsustainable in the future," said Zheng Bingwen, a researcher with Chinese Academy of Social Sciences.

  Although the ministry did not clarify a detailed plan of a more flexible pension system, experts say two possible scenarios are being considered.

  The first scenario is to allow employees to continue working and getting paid for several years after the retirement age, which will increase their incomes and reduce the pension fund's outward payments.

  "In this case, it will definitely put more pressure on the unemployment situation," said Lu Jinghai, a member of the Chinese Academy of Labor Studies. "The government has to create more new jobs for young employees."

  The second scenario is to delay employees' time to collect their pensions, which means an employee has to continue contributing to his pension account after retirement and collect it several years later.

  This scenario could create more uncertainty and even more financial burdens to the already retired and the lay-off employees.

  Allowing for negative immediate repercussions the proposal could cause, experts suggest that any reform to the retirement and pension system should be conducted step by step.

  "The government should keep a good balance between the interests of the employed and the unemployed as well as the employed and the retired," said Prof. Zheng Chenggong, "to reform the system in a progressive manner will better maintain social fairness."

  "In addition, China should have an equal retirement age of 65 by the year of 2050," Zheng said, "generally speaking, to raise retirement age is a long-term trend, and to give employees more options on retirement and pension is an important issue the policy maker should carefully consider."

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