Minding the Gap【Ｐｌｕｇｇｉｎｇ　ｔｈｅ　Ｇａｐ】

　　Central fiscal input for pension funds reached an all-time high in 2005, topping 50 billion yuan ($6.19 billion), or more than 10 times that of five years ago.
　　This is according to Liu Yongfu, Vice Minister of Labor and Social Security, speaking at a press conference held by the State Council Information Office on December 15, 2005. Pension subsidies in the past five years have amounted to 209.3 billion yuan ($25.9 billion), equal to 2 percent of China’s GDP in 2004.
　　
　　According to the Ministry of Labor and Social Security, in some local areas, pensions can’t be paid fully and timely, as there is not enough money for pension expenditures. China central budget has to inject more and more money to make up for the shortage, to ensure retirees get their pensions timely.
　　China is undergoing rapid aging of its population. According to Yuan Xinli, Deputy Director of the Office of China National Committee on Aging, by the end of 2004, the number of people aged over 60 in China exceeded 130 million, while that of those aged over 65 stood at 96.8 million, or 7.6 percent of the country’s total population (from: “The Clock is Ticking” of Beijing Review No.46). These figures clearly indicate the huge challenge the Chinese Government faces in future pension payments.
　　
　　Where is the gap?
　　
　　Chinese retirees’ pensions consist of two parts: social pooling and individual accounts. Social pooling means that the country and enterprises will provide certain amount, while the insured opens a bank account. Each month the enterprise and each employee should deposit a certain amount of money in the account. After retiring, the insured can draw the money.
　　Currently the major headache is the fact that many individual pension accounts have empty tills.
　　According to data from the Ministry of Labor and Social Security, this trend began in early 2000. The money that should have been deposited into individual accounts is close to 800 billion yuan ($99 billion), and this shortfall has been increasing by 100 billion yuan ($12.38 billion) annually. This crisis is due to the present pension system, said Tang Jun, professor at the Chinese Academy of Social Sciences.
　　
　　Massive gap
　　
　　In the past China’s urban employees’ pensions were borne by enterprises or the state. In 1997, China set up an old-age security system for urban retirees, combining social pooling and the individual accounts. Retirees themselves began to contribute a certain proportion at the same time.
　　To those who began working or retired before 1997, years of service for state-owned employees were considered the years they had invested in their individual accounts, according to a regulation issued by the State Council. But as most of the current old-age pensioners retired or began working before 1997, this meant they had empty accounts.
　　Statistics from the Ministry of Labor and Social Security show that the number of retirees on pension is 43.5 million. In urban areas, the number of people buying old-age insurance is 173 million. Plus 43.5 million pensioners, the total number of people with old-age insurance only accounts for about 30 percent of the urban population and less than 15 percent of total laborers. This level of coverage is less than half of the world average.
　　In the past five years, the number of employees buying old-age insurance has been increasing at an annual rate of 4.04 percent. But the number of retirees has been rising by 6.64 percent annually. As no accumulation of pension funds was made, money for individual employee accounts needs to be appropriated to subsidize retiree pensions, causing the pension fund shortage.
　　Xie Xuezhi, Vice Chairman of the National Council for Social Security Fund, said that the pension payment pressure results from two aspects. One is that collected pension funds don’t meet demand, with the annual deficit of 50-60 billion yuan ($6.19-7.43 billion) being subsidized by the State treasury. The other is that more than 100 billion yuan ($12.38 billion) in individual accounts has been appropriated each year. In 2004, the gap in individual accounts exceeded 740 billion yuan ($91.58 billion).
　　Xiang Huaicheng, Chairman of the National Council for Social Security Fund, cited a report of the World Bank saying that if the present pension system remains unchanged, this gap may reach 9.15 trillion yuan ($1.32 trillion) by 2075, with the rapid aging of China’s population.
　　Li Shaoguang, professor from the Center for Social Security Studies of China under the Renmin University of China, said that around 1997, when the pension system was in transition, a debt totaling 8 trillion yuan ($990 billion) was found.
　　The pension gap is set to grow if it only relies on collected pension funds and fiscal subsidies, and whether the pension system can sustain development is a huge headache facing the Chinese Government.
　　
　　Plugging the gap
　　
　　Since January 1 this year, China has adopted a new old-age insurance system. Individual accounts of employees will only contain the portion contributed by individuals, with a monthly deposit of 8 percent of the monthly salary. In the past, money deposited in individual pension accounts was 11 percent of an employee’s monthly salary, with 8 percent contributed by individuals and 3 percent by work units.
　　After the reform, money contributed by work units will not be deposited into individual accounts, but will be transferred into a social security fund. China set up the national social security fund in 2000. The fund now stands at 180-190 billion yuan ($22.28-23.51 billion), with more than two-thirds coming from the central budget.
　　This is a reform initiated by the Chinese Government to solve the empty pension account. The reform, which has been conducted on a trial basis in Liaoning Province since 2001, is now being promoted nationwide.
　　“Funding individual accounts and building the basic old-age insurance fund are important measures to cope with the aging population,” said Tian Chengping, Minister of Labor and Social Security.
　　This reform has also changed the methods of calculation and payment of the basic pension fund, which differs for individuals who began to buy old-age insurance at different times.
　　Original rules will still be applied to the insured who retired before 2006 and they will continue to receive their basic pension. Their old-age insurance benefits will be increased in line with the adjustment of the basic old-age pension.
　　New methods will be applied to those who began working after 1997. After they contribute to the pension fund for 15 years, they can receive a basic pension every month after their retirement.
　　Transitional methods will be applied to the insured who began working before 1997 and will retire after 2006. After they contribute to the pension fund for 15 years, transitional pension will be added to a basic pension.
　　
　　How beneficial is the reform?
　　
　　Before the reform, enterprises were required to contribute 22 percent of per-capita salary, with 3 percent deposited into employees’ individual pension accounts and 19 percent into the social security fund. But now, due to the existing pension gap, the 3-percent contribution is added to the social security fund.
　　In 2004, the national average salary was 16,000 yuan ($1,980). According to the present growth rate, the amount can’t exceed 20,000 yuan ($2,475) in 2006. Calculated with a monthly growth rate of 3 percent and 173 million insured, the pension fund would increase by 1.3 billion yuan ($161 million) a month. The annual increase is about 15 billion yuan ($1.86 billion), which will help offset 25-30 percent of the annual deficit of 50-60 billion yuan ($6.19-7.43 billion).
　　Another benefit of the reform is that China’s old-age insurance can realize the transformation from the pay-as-you-go system to partial accumulation. This will be advance preparation for the pension fund, a method to deal with the pressure of an aging population.
　　But the reform aroused the dissatisfaction of some insured. Although the Ministry of Labor and Social Security has reiterated that the amount of pension will not decrease, some people are not convinced as they are witnessing the money in their own accounts being reduced.
　　After the Ministry of Labor and Social Security released the new reform plan, a survey conducted by China Youth Daily showed that people lacked confidence in a living only on their pension after retirement. Of those surveyed, 57 percent think they have to earn extra money to top up their pension, 92.1 percent worry about life after they can no longer care for themselves and 37 percent think their living standards may decline sharply after retirement.
　　According to another survey conducted by the Guangzhou Daily, some citizens say they would like to save 50 yuan ($6) each month themselves, rather than buy old-age insurance. The survey indicated that people are worrying that as individual accounts are empty, the money employees contribute will have to be used to make up for current pension payments. Meanwhile, even though they get enough pension, their living standards will still decline compared with that before retirement. They think that under the current situation, it’s not necessary to invest in individual accounts. As the old-age insurance fund still has no effective way to insure its value or make it appreciate, after investing in the empty individual accounts, the fund in bank accounts will devaluate.
　　Because of these worries, many people are not willing to buy old-age insurance. To fill in the pension gap, it is not only necessary to reform the individual accounts, but also expand the coverage of old-age insurance. Only as the number of insured increases, can the supply of pension be guaranteed. If the reform can’t pull in more insured, it will be a failure. It seems that there is a lot of work to do to win the trust of ordinary citizens.

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