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ChinaNews版 - Why Time is Running Out on China’s Social Security System (ZT)
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http://www.tealeafnation.com/2013/04/why-time-is-running-out-on
In recent years, issues about China’s pension system have repeatedly hit a
public nerve. Among the hot topics consistently reappearing on the front
pages of Chinese papers, the social pension perhaps has the most direct
influence on people’s lives. Yet convoluted procedures and a lack of
transparency make the institution hard to decipher. From time to time,
officials, scholars and citizens have debated whether there is a major
crisis about the system, and how to fix it. On April 7, at the Boao Forum
for Asia, Dai Xianglong, chief manager of the National Council for Social
Security Fund, became the first top-level official to openly admit that the
pension system as currently constructed is on track to generate a major
deficit. The unprecedented statement might suggest that a major reform would
be unavoidable.
An overview of China’s social pension system and its emerging crisis
The current social pension system, founded in 1997, is a hybrid of two
traditional models adopted by most countries: the pay-as-you-go system, in
which the current workforce contribute to the pension fund that pays for
current retirees; and a fully-funded system, in which every worker saves for
his or her own pension and every retiree gets paid by what he or she saved
while working. Neither of the two original models could function smoothly in
China. The pay-as-you-go system could hardly adapt to a changing
demographic structure, especially in the face of aging population, while the
fully-funded system could not attend to people who have already retired or
were going to retire soon without sufficient fund in their individual
accounts.
Facing with this dilemma, the system was ultimately designed between 1995
and 1997 in a way that seemed to best solve the cost-benefit equation.
Under this system, a worker’s contribution to the Chinese national pension
fund contains two components. Eight percent of his income is required to be
saved in his individual account, and when he retires, he gets back all the
money and the interest it accumulated during his career. Another 20 percent
of his income is contributed to the “social pension fund” (社会统筹基金).
This fund pays 1) pension to seniors retired before 1997 or shortly after
1997 without sufficient accumulation in their personal accounts and 2) pays
every retiree a “basic pension” which, while not identical for each worker
, is weighted to average incomes in a given province and so serves a
redistributive purpose. The latter is only paid to retirees who have
contributed pension payments for longer than 15 years. When one retires in
the future, the total pension he receives is the sum of what has been
accumulated in the individual account and the redistributive “basic pension
.”
At first glance, the financial situation of the system seems to be in good
shape. According to a report by the Chinese Academy of Social Sciences (CASS
), by the end of 2011, the overall pension fund had an accumulated surplus
of 1.95 trillion RMB (or about US$320 billion). During the 2011 fiscal year,
the sum of all inflows outnumbered payments by 413 billion RMB (or about US
$67 billion).
But a more meticulous examination reveals a slowly crumbling system. First,
the seeming financial health of the pension system is subject to an
increasingly large government subsidy, which in effect takes money from all
taxpayers to pay out to retirees. In 2002, the government spent 45 billion
RMB (or about US$7 billion) to subsidize the fund. In 2011, the number grew
to 220 billion, making up 53 percent of the total balance of the year.
Second, it has become widely known that social security agencies have used
funds in individual accounts to finance the social pension fund, against
official regulations prohibiting the practice. In other words, current
workers are paying much large amounts to current retirees than they should.
By the end of 2011, the cash actually in individual accounts was only 12
percent of what it should be, falling short by 2.22 trillion RMB (or about
US$359 billion) and putting almost all workers at the risk of finding that
there is no money left in their individual accounts when they retire.
This is exactly what Dai Xianglong was referring to when he claimed that the
current institution lacked sustainability. What’s worse, thirty years of
birth control has inevitably led to an aging population, which means that in
the future, an even smaller workforce will shoulder pension payments for a
larger population of the aged. It is estimated that in 2050, 332 million
Chinese, or approximately 23 percent of the total projected population, will
be 65 or older. Major reform measures must be devised to alter this
disastrous trend.
Retirement delay: an unpopular solution
The only way to save the system from debacle is to seek more inflow for the
funding pool. The most outright measure would be to increase the rates of
mandatory worker contribution. Nonetheless, since citizens are already
paying a relatively large proportion — 28 percent in total — of their
income, resistance to such a measure would be impossible to overcome.
For netizens — who tend to be younger than the Chinese population as a
whole — one major reason for resistance is that as the aged occupy
positions for a longer time, the young will struggle even more to find jobs.
(Via Bigstockphoto)
The same goal could be achieved less obtrusively by delaying the retirement
age. Later retirement means that people pay for the fund for more years and
receive benefits for fewer. According to Zheng Bingwen, president of the
Social Security Research Center of Chinese Social Sciences Academy, one-year
delay of retirement will bring an extra four billion RMB to the social
pension fund and lessen the burden of payments by 16 billion.
According to the Economic Reference Daily (@经济参考报), the government
started to consider retirement delay as early as 2008. On March 16, 2013,
Wang Xiaochu, vice minister of the Ministry of Human Resources and Social
Security, made it clear that the Ministry was planning to delay the
retirement age.
According to the sixth national census conducted in 2010, the average life
expectancy for a Chinese person is now 74.83 years, while the legal age of
retirement now is 60 for men and 50 for women. Within academia, a consensus
has emerged that the retirement age should be elevated as life expectancy
and the average number of years spent for education both increase. But
scholars continue to hotly debate whether the measure should be adopted
immediately.
On Sina Weibo, China’s Twitter, Web users seem to say “Nay” rather
unanimously. For netizens — who tend to be younger than the Chinese
population as a whole — one major reason for resistance is that as the aged
occupy positions for a longer time, the young will struggle even more to
find jobs. One widely-shared online joke encapsulates this sentiment:
In the future, China will probably be like this: the young wander in parks
or sit in bars every day because they can’t find jobs. The old are forced
to work and not allowed to retire. Every morning, the grandma will say to
her grandson: ‘Look after your grandpa on his way going to work before you
go play.’
On the other hand, older workers, with their productivity in decline, would
be the first to suffer if employers plan to cut back. With China’s
unemployment insurance system still incomplete, retirement delay would
expose workers to new social insecurity.
The real reason for dissatisfaction
But another issue lurks, and is perhaps the most powerful reason that
citizens have resisted change: those who work in public sectors and other
sectors financed by public expenditure are exempt from the system. Their
pensions are paid for by government spending — or in other words, all
taxpayers — rather than their own previous payments. Moreover, the payment
standard they enjoy is much higher than that of the social pension system.
According to CASS, 92.3 percent of retirees in public sectors receive
monthly payments higher than 4,000 RMB (about US$647); while 75.4 percent of
retirees covered by the social pension system receive monthly payments
lower than 2,000 RMB (about US$323). Those in public sectors and the rest of
society are living in different worlds.
Needless to say, web users are furious about this practice. @山东常东’s
comment is representative. “One word to describe the dual-track system:
evil. Civil servants, who do not pay anything for their pensions, can
receive pensions three times as much as average people! This is both
economic robbery and political discrimination.”
Moving the social pension system forward is conditioned upon elimination of
the dual track. Practically speaking, the system’s financial burdens would
be lessened if public servants could contribute to the social pension fund
and the money spent on privileged pensions could be reoriented to subsidize
the fund.
More importantly, calling off the public sector’s privilege would have
symbolic significance. The existence of such bald inequality ignites
feelings of relative deprivation, and promotes resentment of the public
against the government. The dual track is perceived to be the root cause of
the financial chaos of the social pension system, whether it actually is or
not. In fact, Web users like @sj1212 have explicitly linked antipathy
against retirement delay to existence of the dual-track system. “Why not
tackle the system of privilege first? Why not call off the dual-track system
. Why not always require ordinary workers to sacrifice their interest for
policymakers who profit from policies they make? To put it simply: merging
the two tracks much precede retirement delay.”Any major measure to reform
the pension system – such as retirement delay – will only secure wide
support when the privileged agree to forgo their vested interest.
- See more at: http://www.tealeafnation.com/2013/04/why-time-is-running-out-on-chinas-social-security-system/#sthash.AmOqDIIa.J8nXirVe.dpuf
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话题: pension话题: system话题: social话题: china话题: chinese