China’s State Pension Fund To Run Dry in 2035
Youth cohorts are not large enough to support China’s aging population. (Wikimedia Commons)
New research by the World Social Security Center at the government-supported Chinese Academy of Social Sciences has predicted that China’s state pension fund will run out in 2035.
According to Bloomberg, the decline in the available workforce due to the aging population will create a significant inflow-outflow gap in the pension fund that covers the largest number of Chinese citizens: the urban worker fund.
The urban worker pension fund held reserves of 4.8 trillion yuan ($714 billion) at the end of 2018, South China Morning Post reports. The World Social Security Center predicts the fund will peak at 7 trillion yuan ($1.04 trillion) in 2027, followed by a steady decline until it is empty in 2035.
According to the latest annual report published by the Ministry of Human Resources and Social Security, at the end of 2017, the urban worker pension fund covered 403 million people. At the time, there were 293 million workers contributing to the fund and 110 million retirees claiming pension benefits.
The report by the Chinese Academy of Social Sciences also calculated that the gap between fund inflows and outflows could be as wide as 11 trillion yuan ($1.64 trillion) in 2050. This would mean that each retired citizen would be supported by only one worker, instead of the current 1:2 ratio of retirees to workers.
“The basic pension insurance system faces the challenge of financial unsustainability for the medium-to-long term,” the report concludes.
To promote economic growth, the government aims to reduce the financial burden on corporate employers contributing to the pension fund. According to the China Labour Bulletin, China’s State Council announced in March that the employer contribution rate would be cut to 16 percent. This rate varies by region, but when the plan was first introduced in 1997, the rate was usually around 20 percent.
China’s aging population has been an issue of rising consequence as the number of retirees increases. At the end of 2018, there were 249 million retirees. China News Service noted that the current Chinese retirement age varies by sex and occupation: 60 for men, 55 for female white-collar workers, and 50 for female blue-collar workers. However, the vice minister of human resources and social security, Tang Tao, has suggested that the government will adopt a gradual increase in the retirement age. The plan would increase the retirement age to 65 for both men and women to alleviate the potential pension problems of an aging population.
The pension fund’s inflow-outflow gap is one example of the problems caused by China’s aging demographics. For many Chinese households today, one married couple is responsible for caring for both pairs of parents and any children they may have, as the One Child Policy precluded the possibility of any siblings with whom to share the financial burden of elder care.