China shores up pension system
By Sun Xiaohua and Wu Yong (China Daily)
Updated: 2005-12-16 05:59

China yesterday unveiled a scheme to expand pension coverage, in part by setting up an incentive formula, to shore up its welfare system.

The aim is to have more than 220 million people under pension coverage by 2010, Liu Yongfu, vice-minister of labour and social security, told a press conference.

"During the 11th Five-Year Plan (2006-2010), pension coverage will grow by more than 10 million people a year and maintain a growth of about 6 per cent, surpassing 220 million people by the end of the plan period," Liu said.

Some of the changes are:

When employees contribute for more than the minimum-prescribed 15 years, they will get back one percentage point more for every extra year as basic benefits without any ceiling.

"So those who work longer and contribute more will get more benefits," Liu said.

As Liu noted, the current method of benefit calculation leaves no incentive for participation.

For example, those who invest in the scheme for more than 15 years get the same basic benefits enjoyed by those who contribute for exactly 15 years.

"It goes against the principle that rights should match obligations," said Liu.

The new system does not mean employees will pay more into pension accounts. On the contrary, starting next year, they will contribute 8 per cent of their income into their individual pension accounts, compared to the current 11 per cent.

The new system will also expand coverage to more self-employed people and people doing odd jobs.

China faces the problem of an ageing society as more than 10 per cent of its 1.3 billion people are 60 or above, according to official figures. The number of retirees has risen by about 3 million each year in recent years.

But the old pension system has not kept pace with the far-reaching social and economic changes.

The average lifespan after retirement is more than 25 years, compared to 10 years anticipated under the present method of calculation and payment.

"All these have affected the sound operation and sustainable development of the system, which needs further reform and improvement," Liu said.

It is expected that nationwide pension payments this year will reach 400 billion yuan (US$49 billion), compared to 151.2 billion yuan in 1998.

Liu said the national monthly average pension per capita has risen from 413 yuan (US$51) in 1998 to 705 yuan (US$87) in 2004. This year, the number of pensioners is 43.5 million, he said.

Significant progress has been made in the country's effort to weave a social welfare network.

Liu said the coverage of social insurance has been extended to enterprises of diversified ownership while the number of insured has been on the rise from 112 million in 1998 to 173 million this year.

Of the insured, the number of individual businessmen and those working on flexible employment terms grew from 5.35 million to 19.3 million during the period, Liu said.

(China Daily 12/16/2005 page1)