China’s state pension fund to run dry by 2035 as workforce shrinks due to effects of one-child policy, says study

The urban worker pension fund, the backbone of the country’s state pension system, is under threat, warns the Chinese Academy of Social Sciences

Number of citizens exceeding the normal retirement age reached 249 million at the end of 2018, some 18 per cent of the total population

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The urban worker pension fund, the backbone of the country’s state pension system, held a reserve of 4.8 trillion yuan (US$714 billion) at the end of 2018. It is predicted to peak at 7 trillion yuan in 2027, then drop steadily to zero by 2035. Photo: Xinhua

Published: 5:00am, 12 Apr 2019Updated: 10:28am, 3 May 2019

China’s main state pension fund will run out of money by 2035 due to a decline in the available work force, according to new research.

The urban worker pension fund, the backbone of the country’s state pension system, held a reserve of 4.8 trillion yuan (US$714 billion) at the end of 2018. It is predicted to peak at 7 trillion yuan in 2027, then drop steadily to zero by 2035, a report by the World Social Security Centre at the government-supported Chinese Academy of Social Sciences has said.

And the gap between contributions and outlays could be as high as 11 trillion yuan (US$1.64 trillion) by 2050, with each retired citizen supported by only one worker, down from the current level of two, the government think tank calculated.

The report confirms long-standing concerns among the general public, especially among younger people, that China’s state pension system is financially unsustainable and highlights a major challenge for the government after four decades of restrictions on births.

The number of mainland Chinese citizens older than 60, the normal retirement age at which men can claim pension benefits, reached 249 million at the end of 2018, some 18 per cent of the total population and close to three quarters of the population of the United States.

China’s efforts in recent years to increase the population have failed so far. Births in China fell to 15.23 million last year, the lowest since China relaxed its one-child policy in 2014 to allow couples to have a second child.

China’s social security regulations require employers to pay up to 20 per cent of their employees’ salaries into the government pension fund, while employees are required to contribute 8 per cent of their wages. But while the contribution rates are mandatory, enforcement has been lax, with local governments allowing small businesses to pay less to ensure that they maintain high employment.