China is now an aging society. As the aging of the population quickens, the number of elderly people is becoming very large. This trend will reach its peak in the 2030s. To guarantee the basic living standards of the elderly and safeguard their legitimate rights and interests, the Chinese government has continuously improved the old-age insurance system and reformed the fund-raising mode in an attempt to establish a multi-level old-age insurance system marked by sustainable development.

Promoting the Development of a Basic Old-age Insurance System for Employees in Urban Areas

● Reforming the basic old-age insurance system for enterprise employees in urban areas. In 1997, the Chinese government unified the basic old-age insurance system for enterprise employees in urban areas across the country by implementing a social-pool-plus-personal-accounts scheme. Enterprise employees who have reached retirement age as provided by law (60 for male employees, 55 for female cadres and 50 for female workers) and who have paid their share of the premiums for 15 years or more shall be entitled to collect a basic old-age pension every month after retirement. The basic old-age pension consists of two parts: base pension and pension from personal account. The monthly sum of the base pension is tantamount to about 20 percent of an employee’s average monthly wage in that area in the previous year. The monthly pension sum from the personal account is 1/120 of the total accumulated sum in the personal account (11 percent of an employee’s wage being deposited every month in the pension section). The state adjusts the level of the basic old-age pension with reference to the price index of living expenses for urban residents and employees’ pay increases. In 2003, the monthly basic pension for enterprise retirees covered by the basic old-age insurance scheme was 621 yuan on average.

● Expanding the coverage of basic old-age insurance. Initially, China’s basic old-age insurance covered only state-owned enterprises and collectively-owned enterprises in urban areas and their employees. In 1999, this coverage was expanded to include foreign-invested enterprises, private enterprises and other types of enterprises in urban areas, as well as their employees. All provinces, autonomous regions and municipalities directly under the Central government can make provisions to include persons engaged in individual businesses of industry or commerce in the basic old-age insurance in accordance with the specific conditions in their localities. In 2002 China expanded its basic old-age insurance coverage to all those who were employed in a flexible manner in urban areas. In 2003, the number of people participating in the basic old-age insurance scheme across China reached 155.06 million, 116.46 million of whom were employees.

● Undertaking experimental reforms in selected areas to improve the basic old-age insurance system. In 2001, the Chinese government began to carry out pilot projects along this line. The reform includes: gradually establishing personal accounts so that funds can be accumulated, and probing ways of preserving and increasing the value of the funds; changing the way the base pension is calculated and paid, whereby the amount of base pension is more closely linked to the length of time of the employee’s premium payment, and if an employee has participated in the basic old-age insurance program and paid the premiums for 15 years, he or she will be entitled to a higher rate of pension for every additional year of payment; unifying the procedures of premium payment by those who are employed in a flexible manner, whereby the base of their premium payment is uniformly set at 20 percent of the average wage of local employees. The pilot project was first conducted in Liaoning Province, and has been expanded to Jilin and Heilongjiang provinces in 2004.

l Probing the reform of the retirement system of government agencies and public institutions. In China the retirement and pension system in government agencies and public institutions is different from that applied in enterprises. In 2003, there were 670,000 retirees who had joined the revolutionary ranks before October 1949 and 9,310,000 other retirees from these agencies and institutions. In the 1990s, some localities in China began to probe the procedures of reforming the retirement system in such agencies and institutions. Pilot projects were conducted to raise the retirement pension funds through the social pool program. By the end of 2003, some 11.99 million employees and 2.58 million retirees had participated in such pilot projects.

Raising Funds for Basic Old-age Insurance Through Multiple Channels

As the aging of the population quickens and the number of retirees increases steadily, the pressure on the payment of funds for basic old-age insurance is becoming ever greater. In order to make sure that basic pensions are paid in full and on time, the Chinese government is raising such funds through multiple channels.

● Practicing joint premium payment by both enterprises and employees. Generally the premiums paid by enterprises will not exceed 20 percent of the total wage bill of the enterprise, with the specific proportion being determined by the people’s governments of provinces, autonomous regions and municipalities directly under the Central government. Individual employees pay eight percent of their wages as premiums, whereas self-employed individuals and those who are employed in a flexible manner in urban areas pay an amount equal to about 18 percent of the average wage in their locality. In 2003, the basic old-age insurance premium paid by enterprises nationwide totaled 259.5 billion yuan.

● Increasing the subsidy outlay from the government financial budget for basic old-age insurance funds. The state has called upon governments at all levels to increase the momentum of restructuring their financial expenditure and raise their input into social security. In 2003, state budgets at all levels contributed 54.4 billion yuan toward basic old-age insurance funds, of which 47.4 billion yuan came from the central budget.

● Establishing a national social security fund. In 2000, the Chinese government decided to create a national social security fund. Its sources include: funds acquired from reducing state shareholding, stock ownership assets, funds from the central budget, funds raised by other means approved by the State Council, and investment returns. The national social security fund is administered by the National Social Security Fund Executive Council, and is operated on market principles in accordance with the procedures and requirements prescribed by the “Interim Measures for the Management of the Investment of the National Social Security Fund.” The national social security fund provides an important financial reserve for the implementation of old-age insurance and other social security programs. By the end of 2003, it had accumulated over 130 billion yuan.

Promoting the Socialization of Management and Services for Old-age Insurance

In the past, Chinese enterprises were responsible for both the issuance of basic pensions to their own retirees and the administration of those retirees. Now, to ensure that all retirees receive their basic pensions in full and on time, and lessen the burden of social affairs on enterprises, the government is actively practicing the delivery of basic pensions by social service institutions. At the end of 2003, the basic pensions of retirees from enterprises were all delivered by social service institutions, and 84.5 percent of those retirees were under the administration of such institutions.

In 2003, the Chinese government began to implement an information-based labor security project, or popularly called “golden social security project,” in order to raise the overall management level of social insurance and to meet the needs of the floating labor force to continue with their social insurance coverage once they change jobs. The goal of the project is to realize computer-based networking of social security information across the country. So far the networking of old-age insurance information between the Central government and the provinces has been initially effected.

Establishing a Multi-Level Old-age Insurance System

In recent years, the Chinese government has made great efforts to build a multi-level old-age insurance system. In addition to participating in the compulsory basic old-age insurance, enterprises with suitable conditions may set up annuities for their employees. Both enterprises and individuals will contribute to this annuity, which will be accumulated wholly for that specific purpose and managed in the form of personal accounts. The enterprise annuity funds will be managed and operated in accordance with the market mechanism. In 2003, nearly seven million people participated in the enterprise annuity program. In addition, the state also encourages personal savings for old age.

The first two decades of the 21st century will be a critical period in the development of China’s old-age insurance. The state will further improve the basic old-age insurance system that combines social pool and personal accounts, and gradually consolidate the latter. Basic old-age insurance will extend to cover all eligible employees in urban areas, and at the provincial level the establishment and improvement of regulating funds for old-age insurance will be carried out. Social pool at the city level shall be improved and gradually raised to that at the provincial level.