Caixin
Jan 15, 2015 05:34 PM

Beijing Urged to Make Pension Reform More Affordable for Local Gov'ts

(Beijing) – Academics say Beijing should take a smaller portion of workers' salaries under a plan to reform the country's pension systems because local governments may not be able to afford paying the same amount that private-sector employees have been.

The State Council, China's cabinet, announced a plan for a new pension scheme for civil servants and those in the private sector on January 14. The unified system is to start in October.

In the past, civil servants and workers in the public sector, such as doctors and teachers, have not made contributions to their pension fund, but they get higher payments out of public coffers than private-sector workers.

Workers in the private sector have been required to pay 28 percent of their base salaries into a pension fund. Their payments during retirement are much lower than those for civil servants because they have to share with older retirees who made little or no contributions.

Under the reform plan, public workers would need to make the same 28 percent contribution.

The central government's reform will address the inequality between public workers and those in the private sector, experts say, but does not explain where the money for public workers' contributions will come from.

Zuo Xuejin, a research fellow at the Shanghai Academy of Social Sciences, said authorities may have to take less than 28 percent to ease the burden on local governments.

Academics and government officials agree there is a need to cut the rate. Vice Premier Ma Kai said a meeting of the Standing Committee of National People's Congress in December that social security contributions, including pension payments, are too high. However, he said that more studies need to be done before any cuts can be made.

Officials from the Ministry of Human Resources and Social Security promised this month to lower the rates for social security deductions from salaries, particularly the pension fund rates. They did not set a date.

Zuo said that authorities might have to cut the contribution rate to 20 percent.

Hu Jiye, a professor at China University of Political Science and Law in the capital, said rates are high compared with countries that are dealing with older populations, such as Britain and the Netherlands.

British workers contribute an average of 25.6 percent of their earnings to their pension funds, and those in the Netherlands pay 18.5 percent. The average rate in the United States is 12.4 percent.

The percentage of China's population over age 60 will rise from 14.9 percent in 2013 to 34.2 percent in 2048, studies show.

It will be difficult to cut the pension contribution rate as China's number of retirees grows, Hu said. The pension fund grew by 18.6 percent in 2012, but payments rose by 22.9 percent.

Another option for the government to consider is raising the retirement age, Zuo said, but that must come with a way to provide jobs for older people.

(Rewritten by Li Rongde)

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