Coronavirus: China’s state pension fund under increasing pressure after fee cuts to help struggling businesses

Businesses can reduce or even stop contributions to provincial pension funds amid the outbreak in an effort to help them weather the current economic storm

But China’s state pension fund was already under pressure from an ageing population, with fears it could run dry by 2035 even before the pandemic

5-MIN READ5-MIN

Last year, the Chinese Academy of Social Sciences forecast that the value of China’s national pension fund would peak at 6.99 trillion yuan (US$985 billion) in 2027 before gradually running out by 2035. Photo: AFP

Published: 5:30am, 7 Apr 2020Updated: 5:57am, 7 Apr 2020

China’s short-term goal of pulling its economy out of the trouble created by the coronavirus pandemic is in danger of exacerbating the existing pressure on its national pension system already strained by an ageing population.

Beijing announced in February that businesses could reduce or even stop contributions to provincial pension funds amid the outbreak in an effort to help them weather the current economic storm.

This is part of a concentrated effort by governments at all levels with China’s economy set to contract in the first quarter of 2020 for the first time since 1976. The outlook for the world’s second largest economy is heavily clouded by the sharp downturns in the US and European economies as the pandemic continues to spread.

The move to reduce contributions, though, will only worsen the already acute problem of paying the rapidly rising number of Chinese retirees, underlining issues faced by local government with their already overstretched budgets.

Last year, the Chinese Academy of Social Sciences forecast that the value of China’s national pension fund would peak at 6.99 trillion yuan (US$985 billion) in 2027 before gradually running out by 2035. The number of elderly in China is expected to rise from around 200 million to 300 million in 2030 and 460 million in 2050.

But for now, local government are focused on getting the economy back on track as weak growth will only make the pension problem worse.

China’s social security regulations traditionally require employers to pay up to 20 per cent of their employees’ salary into government pension funds, while employees are required to contribute an additional 8 per cent.