Despite officials’ assurances that the Chinese urban pension system is under control and that it has defied forecasts of a revenue shortfall, an academic warns that the government must still ease pressure on the system in the long run, such as by raising the retirement age.
Hu Xiaoyi, vice-chief of the Ministry of Human Resources and Social Security, announced in a press conference in Beijing on Wednesday that the urban enterprise pension system, which covers most workers, had a balance of more than 400 billion yuan (HK$506 billion) at the end of last year.
He said fresh contributions last year reached 2.25 trillion yuan, while it paid pensioners just 1.84 billion. “Based on the current balance, we don’t have a pension shortfall,” Hu said.
But Wang Xujin, an insurance professor at the Beijing Technology and Business University, said the nation faced pressure from a pension shortfall in the long-term because of an ageing population. He noted that the current balance in the urban enterprise pension fund was only one part of the pension system.
Some economists, Hu said, had predicted a 13 trillion yuan shortfall in pension payouts – which he said was a “kind of forecast [that] caused anxiety in society, but it’s groundless”.
A 2012 study by Deutsche Bank and the Bank of China, meanwhile, projected a larger shortage – 18.3 trillion yuan – in future pension payments by last year, according to a Bloomberg report.
China’s own government “think tank”, the Chinese Academy of Social Sciences, said the country would start to face a pension crunch in 2023 when revenue would not be enough to support payments to urban retirees. It estimated a cumulative pension shortfall of a whopping 802 trillion yuan by 2050 if the pension and retirement policies remained unchanged.
But Hu seemed unfazed by the reports. While acknowledging that China’s rapidly ageing population was a big issue and that some long-term forecasts would need to be taken into account when drafting future policies, Hu said these figures should not spark public panic.
As of late last year, 9 per cent of the population was aged over 65 – equivalent to 123 million people – compared to 5 per cent 30 years ago, according to The Diplomat.
“The government should decide on delaying the retirement age as soon as possible to [allow] more sources for pension funds,” Wang, the professor, said.
Raising the retirement age could also help ease the pressure for the next generation to support the pensioners, Wang added. Currently, the retirement age for men is 60, while it is 50 for women.
Reforms in pension funds’ investment rules would also be needed, Wang said.
“China’s capital market has become increasingly mature. It’s time to think about how to boost the value of the pension fund through investments – not only to preserve the value,” he said.