Opinion | For a healthy and sustainable pension system, China must fill the funding gap
Hu Shuli says the time is right to use state-owned assets to top up the social security fund, given the greying population and shrinking workforce
Last month, the State Council announced the public-sector employees' pension system would be reformed, to rectify inequalities between private- and public-sector workers, a problem that has remained unresolved for years. However, with few specific details available, there are renewed fears that the changes could still result in an unfair system.
In general, China's pension system faces three major challenges: fairness, flexibility and sustainability, of which sustainable development is by far the biggest problem.
In recent years, there have been many reports about a decrease in the size of the basic pension fund. Academics and officials have repeatedly said that pensions will be paid in full and on time. Yet, there's no doubting that sustainability is becoming a serious problem, as the mainland's population ages fast and payouts grow at a faster rate than revenue going into the fund. What's more, under the "new normal" economic conditions, growth in fiscal revenue has slowed.
At the National People's Congress Standing Committee meeting at the end of last year, Vice-Premier Ma Kai said that if China didn't reform the old system, "there will be a gap in old-age pensions, and it will not be a small gap, but a large one".
Actually, reform planners foresaw such concerns years ago. The National Social Security Fund was set up in 2000 using government funds and investments that would allow the pension fund to keep growing. However, at the end of last year, the fund's balance stood at only 1.1 trillion yuan (HK$1.38 trillion) - hardly sufficient to cope with the largest "silver wave" in history. Under the pay-as-you-go system, workers are reluctant to put money into the fund, which leads to more sustainability problems. The workforce is also shrinking. It is a vicious circle, affecting every corner of the economy and society.
The problem is a complicated one, but the prime culprit is past debt. During the planned economy, state-enterprise workers earned little, but their pensions were provided directly by the SOEs for their entire lives. In the 1990s, when the mainland shifted to a socialist market economy, it introduced a social security pool for the state, enterprises and individuals to share responsibility. However, the government and SOEs have failed to keep their promise to inject money into the pool, and the country has never recovered from the shortfall.
