The challenges for the Chinese pensions-lessons from Europe?

1
The challenges for the Chinese pensions-lessons
from Europe?

• Danping Yan
• Huazhong University of Science Technology

2
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 Chinas 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.

3
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.

4
The main problems facing Chinas Urban pension
system

• Empty accounts
• Low Coverage Ratio
• The implicit pension debt
• High contribution rate

5
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 EUs pension systems have not succeeded
  in ending gender inequalities in old age.

6
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