Ageing society

China’s rapidly greying population leaves provincial pension pots seriously short of cash

Ratio of workers to retirees fell to 2.8-to-one in 2016, with 13 regions now struggling to meet monthly contributions, official report says

PUBLISHED : Monday, 11 December, 2017, 9:02am
UPDATED : Monday, 11 December, 2017, 9:30am

China’s provincial pension funds are rapidly running out of money, with the coffers in 13 jurisdictions down to less than a year’s worth of payments, local media reported on Sunday.

Among the worst affected is the northeastern province of Heilongjiang, where the local government has already begun dipping into its fiscal revenue to fund monthly pension payments, The Beijing News reported, citing an annual survey released recently by the Ministry of Human Resources and Social Security.

China’s greying society and uneven economic development have put enormous pressure on the nation’s social security scheme. Overall contributions to the national pension fund rose by 19.5 per cent, or 571 billion yuan (US$86.19 billion) last year, but payments grew by 23.4 per cent, or 604 billion yuan, according to the report.

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It was the fifth consecutive year that the growth in spending had outpaced the expansion of funds.

While provinces are responsible for managing their own funds, the vast differences in prosperity levels from one region to the next means the system is unbalanced.

Authorities in affluent Guangdong province, for example, had enough money in their pot at the end of last year to cover almost five years’ worth of pension payments, the report said.

The problem for Heilongjiang is that in recent years the proportion of retirees has risen while the size of its workforce – and hence number of contributions to the pension fund – has plummeted.

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The number of pensioners in the province rose to 4.57 million last year, from 2.68 million in 2010, according to national census figures. Similarly, in 2010, more than 3.2 million people left Heilongjiang in search of work elsewhere, nearly a third of whom were in the prime working age range of 30 to 39, the report said.

As a result, the provincial government was left with a 23.2 billion yuan shortfall in its pension fund last year.

According to Zhao Xijun, a finance professor at Beijing’s Renmin University, while a pension scheme could in theory continue to operate as long as its value remained higher than its outgoings, having a surplus provided security.

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“The ideal scenario is for the scheme to be able to meet pension payments from the gains made by investing its surplus funds, he said.

“That also means it is never affected by a fall in the number of contributors.”

While the shortfalls in pension pots are a major concern for both the national and provincial governments, a more worrying concern is the country’s rapidly ageing population.

In 2011, taking a national average, each pensioner was supported by 3.1 workers, or contributors to the fund. By the end of last year, that ratio had fallen to 2.8-to-one, according to the ministry’s survey, adding that by 2050, it would be just 1.3-to-one.

“It is a very big drop from 3.1 to 2.8,” Zhao said. “With a greying society, the outlook is not optimistic.”

In Heilongjiang, the worker-pensioner ratio was 1.3-to-one at the end of last year, according to the survey, while in eight other province-level jurisdictions – Hubei, Gansu, Inner Mongolia, Xinjiang, Sichuan, Chongqing, Liaoning and Jilin – it was under two-to-one.

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China’s pension scheme was set up in the 1990s, and the state retirement ages are now 50 for women and 60 for men. At the end of last year, 16.7 per cent of the population, or 230 million people, were aged over 60.

Aside from Heilongjiang, the 12 jurisdictions with less than one year’s payments left in their pension coffers include 11 provinces and regions – Guangxi, Jiangxi, Hainan, Inner Mongolia, Hubei, Shaanxi, Qinghai, Hebei, Tianjin, Liaoning and Jilin – and Xinjiang Production and Construction Corp, a massive organisation that has authority over several towns in the western China region.