China’s looming pensions crisis: Public urged to pay longer into scheme amid impending funding shortfall

China’s Ministry of Human Resources and Social Security has urged the public to pay into their pensions after the minimum 15-year contribution is completed, saying it is “worthwhile” amid a looming pensions crisis, according to a newspaper report.

The ministry is working on incentive policies for pension contributors to make sure those who pay more will receive higher pensions when they retire, the National Business Daily reported.

READ MORE: For a healthy and sustainable pension system, China must fill the funding gap

Employees pay about 8 per cent of their monthly salary into an individual pension account each month. Their employers pay about 20 per cent of each person’s monthly salary in a central pension fund, according to Chinese regulations.

Employees are entitled to pension benefits after retirement if they have made contributions for at least 15 years. They receive payments from their individual account and the public fund, but how much they get depends on government regulations when they retire.

Because of a severe funding shortage – with some analysts estimating that the cash shortfall could rise to as much as US$11 trillion in the next 20 years – as well as the central government’s decision to gradually raise the retirement age over the next five years, many pension payers have started to feel concerned they may not get back what they have paid in.

An unnamed official from the ministry was quoted by the newspaper as saying: “An individual will get higher pension payment if he or she pays longer and pays more into the fund.”