Shanghai mulls salary freeze to fill pension hole

PUBLISHED : Wednesday, 16 February, 2011, 12:00am
UPDATED : Wednesday, 16 February, 2011, 12:00am

Shanghai is considering freezing the pay of civil servants in an attempt to plug an annual shortfall of more than 10 billion yuan (HK$11.82 billion) in its pension fund, a top city party official said.

Despite the huge gap in its finances, the municipality's pension payments are still far below the national average, Shanghai Communist Party secretary Yu Zhengsheng was quoted as saying by the China Economic Weekly.

'Compared to civil servants, there are many others with much lower incomes, such as retired workers, whose pensions are at a very low level,' Yu said. 'Shanghai retired workers get 1,800 yuan a month, which is lower than the level in Beijing.'

The magazine said Yu made the previously unreported comments at closed-door meetings during the city's People's Congress and Political Consultative Conference last month.

Research by the Shanghai committee of the Jiu San (September 3) Society showed that pension payments in Shanghai over the past five years equated to 44.9 per cent of average earnings in the city - against the national ratio of 64 per cent.

Yu said the low pension level in Shanghai was due to 'historical reasons'. The fund was covered by current contributions and its sources of income were insufficient.

'It is in deficit and requires an annual subsidy from public finances of over 10 billion yuan,' he said.

Yu cited pension pressure on the public purse for dismissing calls for a pay rise in the public sector. Civil servants have complained that their pay has not risen for at least six years.

The massive black hole in the pension fund presents a major challenge for Shanghai, which is facing a rapidly ageing urban population.

Of its 14 million hukou-holders at the end of 2009 - the latest figures available - almost 3.2 million were more than 60 years old, compared with 1.5 million who were under 18.

Professor Yang Tuan, a deputy director of the Chinese Academy of Social Sciences' Social Research Centre, said Shanghai's ageing population was 'the most serious in the country' but added that pensions were causing a headache for the central government on a national scale.

'There is nothing strange in hearing Shanghai's pension fund losing money. This is not a problem that is affecting Shanghai alone, it is a nationwide phenomenon,' Yang said. 'While there are some pension funds that generate a surplus, the majority are running at a deficit. Overall on a national scale, pensions lose money.

'Due to the ageing population, there are not enough people paying into the system and more people requiring payouts. This problem is only going to get worse in years to come.'

She said the problem needed to be solved on a national scale, or else local governments would take radical action, such as diverting money from land sales or increasing contributions from state-owned firms.