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Macro · Policy
Challenges appearing in China’s pension fund system
CKN
2019/04/12 10:42:21
2,666
China pension fund, social security, ageing population

Apr 12, 2019 (China Knowledge) - China's main state pension fund is under threat of running out by 2035, after decades of population birth control puts the country into a rapidly ageing population, causing a decline in the available work force.

The country's state pension fund which currently holds a reserve of RMB 4.8 trillion is expected to peak at RMB 7 trillion in 2027 before starting to decline and possibly run dry by 2035. Gaps between contributions and outlays for the state pension fund could run as high as RMB 11 trillion by 2050 with each retired citizen only supported by one worker, down from the current ratio of 2 workers per retired citizen.

The number of mainland Chinese citizens aged 60 and above (retirement age at which all Chinese citizens can claim pension benefits) reached 250 million as of end 2018, representing 18% of the total population, highlighting the inherent flaws and instability in the country's current pension system.

Current social security regulations require employers to buy 20% of their employees' salary into the state pension fund while the employees themselves are required to contribute 8%. While these contributions are mandatory, enforcement has been lax among local governments to lower employment costs for small businesses and to keep employment rates high.

Last year, the central government took over the collection of social security contributions to ensure adequate contributions to the pension fund but soon relaxed their stance due to the country's economic slowdown to help smaller businesses.

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