China’s state pension is estimated to deplete by 2035. Research seems to point to a decreasing workforce as the main cause for this issue. The urban worker pension fund, the backbone of the country’s state pension system, held a reserve of 4.8 trillion yuan (US$714 billion) at the end of 2018. It is predicted to peak at 7 trillion yuan in 2027, then drop steadily to zero by 2035.This statement comes from a report by the World Social Security Centre at the government-supported Chinese Academy of Social Sciences.
The report goes on to note that the basic pension system has been known to face challenges such as being insufficient in helping retirees make ends meet. Financial subsidies have served to alleviate the issue somewhat but is not a sustainable option.
Pressure for sustaining the pension funds are expected to rise starting this year. In 2019, it is estimated that nearly two contributing workers are supporting a single retiree. By 2050, estimates show only one contributor will be able to support a retiree.
The report also pointed out that there were six provinces whose pensions already had a net outflow position with pension as of 2015. It is estimated that by 2022, there will be 13 or 14 such provinces, nearly half of all of China’s provinces.
All-in-all, the report confirms the long-standing concerns of the general public. China’s state pension fund is financially unstable after four decades of birth restrictions.
According to data from China’s Ministry of Finance, the issue regarding the pension fund deposit stretches back as far as 2011 and has since gotten more severe.
China’s social security regulations currently require employers to pay up to 20 per cent of their employees’ salaries into the government pension fund. Employees on the other hand contribute about 8 per cent of their wages. Despite it being mandatory to contribute to the fund, enforcement has been lax; with local governments allowing small businesses to pay less to ensure that they maintain high employment.
The Chinese government has taken several steps to address the pension deficit. One such method involves delaying the state retirement age and reducing social insurance premiums. The Ministry of Human Resources and Social Security announced that starting from 2017, the qualifying age for pension will increase gradually. It is predicted that the qualifying age will be 65 years old by 2030.
Several scholars and critics have pointed out that this method forces workers to pay pension insurance premiums for five more years, while enjoying the pension five years less.
China’s current system relies on contributions from the current work force to pay current retirees. Those born in the late 1970s and the 1980s, the one-child generation, are now contributing a quarter of their salaries to the state-run funds. However, they are now seemingly the most likely to bear the brunt of necessary adjustments to pension benefits in the future.
