China’s pension system and reform: an OECD perspective

Abstract

Population ageing is a worldwide phenomenon, but the speed and scale of ageing are much greater in China than in most other countries. This paper discusses the key demographic indicators of the population in China and provides a comparison with Organisation for Economic Co-operation and Development (OECD) countries. The evolution of the Chinese pension system is summarised before concentrating on the current structure for both public- and private-sector workers as well as rural and urban residents. The level of future pension promises for full career workers is calculated and compared with those of selected OECD countries. Possible future challenges are highlighted as China seeks to achieve an adequate and sustainable pension system. The paper highlights the issue of high level of pensioner poverty in comparison to many OECD countries as well as the low retirement age, particularly for women, despite China’s relatively high employment rates for older workers.

Keywords:

• Demographics
• population ageing
• pension system

Notes

Disclosure statement

The authors report no conflicts of interest. The authors alone are responsible for the content and writing of this article.

Disclaimer

The opinions expressed and arguments employed herein are solely those of the author(s) and do not necessarily reflect the official views of the OECD or of its member countries.

Notes

1 In 2015, the reform on integration between the civil service and PSU scheme and BUWP scheme was introduced by the central government, but the implementing body – local government - has not finalised and published the details in many provinces at the time of writing.

2 According to the current arrangements in China, the PSU sector broadly consists of three different types of entities, which are mainly differentiated by sources of funding (Hu and Herd 2010). (1) There are such PSUs, which exercise regulatory and supervisory authorities, and their funding is totally from the government, e.g. China Securities Regulatory Commission (CSRC). (2) Some other PSUs are almost fully financed by their own generated revenues, and they are in fact operated as de facto commercial entities, e.g. China Central Television (CCTV). (3) Most of other PSUs lie between the above two, i.e. financed partially by the government budget and the remaining by their own generated revenues. Typical examples include hospitals, universities and research institutions, e.g. China Academy of Social Sciences (CASS). Complexity of the PSU classification and the consequent difficulty of agreeing on cost sharing between institutions have been argued to be an important reason leading to slow pension reform in this sector.

3 The total size of assets was RMB 873.8bn in Table 14, which is smaller than the actual size of RMB 952.6bn in Table 13, since not all asset managers participated in the survey.

4 In 2006, the Shanghai pension scandal was a corruption case in China. It was alleged that one-third of the RMB 10bn in assets of the Shanghai social security fund had been invested in real estate and road investment projects with the Shanghai Party Committee Secretary being sacked and eventfully sentenced to 18 years in prison.