China’s young people fear ‘miserable retirement’ with state pension fund predicted to dry up by 2035

Rapidly ageing population and shrinking workforce mean net contributions will start to decline in 2023, according to Chinese Academy of Social Sciences study in April

Government has already transferred 600 billion yuan (US$87 billion) in equity to the fund, but people are taking out private pension plans from as young as 20s

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In 2018, Chinese families had the fewest babies since 1961, government statistics showed. Photo: Xinhua

Published: 6:00pm, 30 Jul 2019Updated: 10:26pm, 30 Jul 2019

Like most of his Chinese peers born in 1990, Gustav Wu is the only child in his immediate family. Raised in a middle-class home in Shanghai, Wu went to an elite university and joined a well-run company after graduation. His parents were able to buy him a flat a few years ago.

Comfortably situated, there seemed nothing for him to worry about in the near term. However, since 2015, Wu has become increasingly concerned about his government pension after he learned that the fund is projected to run out before he retires.

“I am the only child in my family and I have to support my parents when they get old. I don’t want my retirement life to be miserable,” said 28-year-old Wu.

In April, Wu bought a pension insurance policy in Hong Kong, costing US$10,000 annually for five consecutive years, although this is seen as a rare move among his peers to begin preparing for retirement at such a young age.

I am the only child in my family and I have to support my parents when they get old. I don’t want my retirement life to be miserable

Gustav Wu

In the same month, a report by the Chinese Academy of Social Sciences (CASS) warned that the accumulated reserve in the nation’s pension fund for urban workers, the backbone of the country’s state pension system, would peak at 6.99 trillion yuan (US$1 billion) in 2027 and then drop steadily to zero by 2035.

Data from Ministry of Human Resources and Social Security showed that at the end of 2018, the fund held an accumulated reserve of 5.09 trillion yuan (US$738 billion). The fund received contributions of 5.12 trillion yuan and had outlays of 4.46 trillion yuan in 2018, resulting in a net contribution surplus last year of 660 billion yuan (US$96 billion).

The CASS report said that the annual net contribution surplus would grow until 2022 before beginning to decline in 2023. The annual net contribution balance would then turn negative in 2028 for the first time based on current contribution and outlay projections, which foresee the fund running an annual deficit of 11.28 trillion yuan (US$1.6 trillion) in 2050.