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Enterprise pensions in China: history and challenges.

1. THE STATE PENSION BEFORE THE ECONOMIC REFORM

There were no formal arrangements for retirement in China until after 1 October 1949, when the People's Republic was established. This section describes the evolution of the state pension system from the first regulation in 1951 to the late 1970s.

1.1 THE CREATION OF THE LABOR INSURANCE IN THE 1950s

The first regulation about labor insurance was issued by the State Council in 1951. It introduced an old age allowance, disability and survivor benefits as well as other insurance benefits for employees. The 1951 regulation only covered a few service sectors and industrial enterprises with more than 100 employees. The pension benefits were about 35 to 60 percent of individual employee's wages, depending on the length of service in the enterprises from which they retired. (1) This benefit level increased from 50 to 70 percent in 1953, the first year of the First Five-Year Plan. (2) The pension benefits and other insurance benefits were entirely financed by enterprise contributions at a rate of 3 percent of the wage bill. Because of the small number of retirees in relation to workers, the contributions were, of course, sufficient to finance the system on a pay-as-you-go basis. For example, in 1952, one year after the start of the program, there were only 8 million enterprise workers and 20,000 retirees, or over 400 workers per retiree. In 1958 the coverage was extended to enterprises with less than 100 employees and also to government employees. However, few collective-owned enterprises joined the system because of a limited number of workers and small-scale of production.

The social insurance system was supervised by the Ministry of Labor and jointly administered by the Ministry of Labor and the All-China Federation of Trade Unions (ACFTU). In 1954 the administration was unified and totally transferred to the latter. It was required that 70 percent of the contributions were retained by the trade unions of individual enterprises while the remaining 30 percent were transferred to a national master fund and managed by the ACFTU. Pensions and other social insurance benefits were firstly paid from the enterprise funds while the fund managed by ACFTU was used as a last resort. Under this arrangement, the fund could be balanced at the national level.

1.2 THE PENSION PROVISIONS DURING THE "CULTURAL REVOLUTION"

The state pension system created in the 1950s continued its operation until the beginning of the "Cultural Revolution" that lasted for ten years from 1966. During the period of "Cultural Revolution", the social insurance system, including pension insurance, was suspended.

At the beginning of the Revolution, activities of the trade unions and the Ministry of Labor at all levels were interrupted. In 1967, ACFTU passed the administration of the master fund to the Ministry of Finance. However, the fund became smaller and smaller due to decreasing contributions to the Labor insurance funds and the misuse of those funds accumulated. In 1969 the Ministry of Finance had to transfer responsibility for pension provision to individual employers ("working units" in Chinese term). After that each employer paid pensions to its own employees and the social insurance system was, in fact, converted into an enterprise-insurance system.

Due to an absence of records, some employees did not receive their full entitlement whilst others received more than they should have. Many retirees in about ten provinces did not receive benefits regularly. In many factories and enterprises workers kept on working unless they were physically incapacitated. In 1978, there were 2 million employees in enterprises and 600,000 employees in other institutions and organizations, all of whom according to their age should have retired.

1.3 THE PENSION REVISIONS AFTER THE "CULTURAL REVOLUTION"

In 1978, the State Council issued new pension regulations (3) for state-owned enterprises, government institutions, and non-profit organizations. It was reaffirmed that the retirement ages were 60 for men (65 at executive levels) and 55 for women (50 for blue-collar workers) with additional adjustments for those in arduous and unhealthy jobs (in which case, 55 for men and 45 for women). Under the new regulation the pension benefits, about 60-75 percent of the last month's standard wage, depending on length of services, were payable after 10 years instead of after 25 years under the old regulation. Those who had worked for at least 20 consecutive years would receive pension of 75 percent of their standard wage. Those who had worked for 15 to 20 years would receive 70 percent. Those who had worked for 10 to 15 years could expect 60 percent. There was a minimum guaranteed pension of 30 Yuan per month. Disability pensions were related to the final standard wage and the extent of care needed.

The government encouraged the collective-owned enterprises to provide pension benefits to their management and workers. Between 1977 and 1979 several regulations were issued to recommend that the co-operative factories in light industry, transport, co-operative shops and collective-owned clinics follow the same rules as the state-owned enterprises in implementing the 1978 regulations on pension benefits. Those not covered could set aside a part of their pre-tax profits for social insurance benefits, including pensions, with approval from Labor authorities and local taxation departments.

The principal merit of the 1978 reform lies in its reestablishment of a retirement system. However, the pension system had two core unsolved problems. The first was that of high pension costs. As mentioned earlier, due to the interruption of the retirement system during the "Cultural Revolution", a large number of workers who had already passed their retirement age kept on working. This resulted in huge pension costs with the reinstatement of retirement at the end of the Revolution. Moreover, the cost increased as the 1978 regulation provided incentives for an early retirement. The minimum number of years' service required to qualify for a retirement pensions was revised from 20 to 10 in order to create more job vacancies for the returning youths who had been sent to the countryside to receive "Re-education from Farmers". In addition, the cost increased even faster with a new regulation stating that the pension benefits were based on a worker' last month's standard wage. Thus, the 1978 regulation provided incentives for enterprises to increase their workers' final wages in the year before retirement. Given those incentives, between 1978 and 1985 the total number of retirees jumped fivefold and the pension costs rose from 2.8 percent of the urban wage bill to 10.6 percent. It must be noted that enterprises also provided other in-kind welfare besides insurance benefits. Most enterprises provided welfare such as health care, housing, clothing, food, entertainment facilities, haircuts, showers and even kindergartens and schools. It was noted that enterprises were like mini-welfare states providing all the needs of their employees from "from cradle to grave". The second problem was the uneven distribution of the pension costs between enterprises: costs were much higher for those with a higher ratio of retired to employed. Under the system in which each enterprise had to pay its own retirees' pensions (since the "Cultural Revolution"), the question of how those enterprises financed their pension costs became crucial.

2. FUNDAMENTAL REFORMS SINCE THE MID-1980S

With the deepening of enterprise and economic reforms, a frame of social security system in line with a market-oriented economy was strongly required. The government had to put further reforms on social securities at the top of its priorities. Since the middle of the 1980s, some fundamental changes have taken place in the pension system in China.

2.1 SOCIAL POOLING

In order to redistribute uneven pension costs across individual enterprises, the government had to encourage the pooling of pension liabilities. In 1986 the State Council (State Council, Document 77 of 1986) established a pooling system across state-owned enterprises, predominantly at the municipal level and, less importantly, in certain industrial sectors such as the non-ferrous industry and the coal industry. The pool operated by setting a contribution rate for participating enterprises. If the pension costs of an enterprise were less than the contribution rate, it would remit the difference to the pool, if pension costs were higher than the contribution rate, the pool would cover the difference for the enterprise.

The 1986 pension reform was accompanied by employment reforms that established contract Labor. New workers were to be hired on a contractual basis while the current workers would continue as permanent workers. Separate city-based pension pools were established for contract/new workers and permanent/current workers. The contract workers made individual contributions while the permanent workers did not. Enterprises contributed to both pools. In the late 1980s the pooling plan was extended to collective-owned enterprises' workers in many cities.

It must be added that although enterprises retained the responsibility for distributing the pensions, the pooling system did help to redistribute the pension costs across enterprises, reducing the heavy pension burden of some enterprises. However, the pooling was operated on a very small scale and the rates of contributions still varied enormously across individual enterprises. Due to the fact that the central government did not subsidize local government pension shortfalls, finance bureaus at county and city level must take the leading responsibility for benefit financing in order to secure the pension payments in their own localities.

2.2 INDIVIDUAL CONTRIBUTIONS

In 1991 the State Council (Document 33 of 1991) called for individual contributions from all workers. All workers would be required to contribute 3 percent of their standard wages to the pooling funds in addition to enterprise contributions. It was also stipulated that the pooling system or the social arrangement should be partially funded. The funds in the pool were to be managed by the social insurance executive agencies, which were supervised by the Ministry of Labor. Funds had to be put in banks in a special pension insurance account and used only for paying pensions.

2.3 COMBINATIONS OF SOCIAL POOLING AND INDIVIDUAL ACCOUNTS

Document 6 issued by the State Council in 1995 was a major guide for recent pension reform. It set up the following principles. First, the benefit level should be adapted to the social productivity of the country and should be sustainable. It addressed need for China to draw lessons from European countries where pension expenditures had already been the heavy burden on the governments' budgets. The replacement rate of state pension would be lowered gradually as the average wage level increased. Second, the pension system must combine individual rights and responsibilities. In other words, social mutual aid must be combined with self-insurance. This meant that the pension benefit would be based on the individual compulsory contributions during employment. Third, the pension costs would be shared between individual participants, enterprises and the government. It was required that China set up a three-tier pension system including a state pension, an enterprise supplementary pension and individual savings pension. Fourth, equity would be combined with efficiency. At the primary stage of the development of a socialist market economy in China the efficiency principle would be given higher importance in order to generate enthusiasm for work. Fifth, administrative services would be separated from fund management. According the State Council, the administrative services, including collection of funds and benefit payments, should be transferred from enterprises to the executive agency at all governmental levels. Post offices and banks would assist with payment procedures and tax authorities with collection.

The State Council recommended two plans for the reform. The objective of the both plans was to combine the social pooling (state pension provision) and individual accounts. (4) They combined in different ways with Plan 1 having emphasis on the personal saving account and plan 2 having emphasis on the primary social insurance account.

Under Plan 1, the state pension for new workers employed after the reform was completely based on individual accounts. A social pool was responsible for pensions for those already retired, for current workers not covered by individual accounts and for certain adjustments for the retirees drawing from individual accounts. Each local government (i.e., each province and each county and township) set the rate of enterprise contributions to the social pool according to the number of retirees in their localities. Contributions credited into individual accounts were approximately 16-17 percent of the total wages and contained the following three parts:

* an individual contribution of 3 percent of the individual worker's total wages;

* an enterprise contribution of 8 percent of each worker's total wages; and

* an enterprise contribution of 5 percent of the average local wages.

Individual contributions were to be increased over time whilst enterprise contributions would decrease by 1 percentage point every 2 years for 10 years until individual contributions accounted for half of the total contributions to the individual account, about 8 percent of total wages.

A worker who having contributed to the new system for at least 15 years or having had a continuous employment tenure (including the contribution years) of at least 10 years before the reform would receive a monthly pension after retirement equal to 1/120 of total accumulated contributions to the individual accounts. Should the pension be less than the minimum pension, the same government that managed the social pool would make up the difference. The level of minimum pension was specified by local governments. It is estimated that a worker who contributes for 15 years will receive an average pension of 24 percent of the wages in his or her final working year. For those who contribute for 20, 25, 30, 35 and 40 years the replacement rate would be 32, 40, 48, 56 and 64 percent respectively. A worker with less than 15 years of contributions would receive the accumulations on his or her individual account in a lump sum on retirement. A worker who outlives the individual account would continue to receive a pension from the social insurance pool.

Plan 2, on the other hand, emphasized social pooling over individual accounts. The total cost of the state pension, including the social pool and individual accounts, was financed by individuals and their enterprises. Again local governments set up the rates of contributions for both individuals and enterprises. However, only 3 percent of individuals' total wages were credited to individual accounts. For those whose payment period was longer than 10 years, the pension would consist of the following parts:

* a social pension equivalent to 20-25 percent of the local average wage;

* an earnings-related pension equivalent to 1.0-1.4 per

* an individual account pension equivalent to 1/120 of total accumulations on individual accounts to be drawn as a lump sum or annuities.

The Ministry of Labor estimated that a worker who contributed for 15 years would receive an average pension of about 38.5 percent of the previous year's wage before his or her retirement. For contributions of 35 and 40 years, the average replacement rate would be 63.5 percent and 69.8 percent respectively (see, Table 1)5. A worker with less than 15 years of contributions would receive the amount in the individual account in one lump sum on retirement. As in Plan 1, there were special transitional arrangements for those who had already retired and for employees not fully covered by the new scheme.

2.4 UNIFICATION OF THE STATE PENSION

After two years of experimentation with the combination of social pooling and individual accounts, the relevant ministries finally realized how serious had the fragmentation of the pension system become. This impelled them to make compromises between the two reform plans proposed in 1995. The State Council enacted Document 26 in July of 1997. At the end of July, only 15 days after the issue of Document 26, the State Council held a national work conference on the unification of the state pension system. In this meeting the State Council urged local governments and relevant departments to act immediately according to the new document and requirements of the meeting. Local governments and relevant ministries were required to make their own transitional plans for the unification and choose a date before the end of 1998 for the implementation of the unified plan. Thus the two plans proposed in 1995 were unified.

Under the unified pension system, an individual's contribution is based on the average monthly wage in the previous year. The monthly wage includes basic wage, bonus, allowance and subsidies. Both a floor and a ceiling are set for contributions. For the low-income worker whose monthly wage is lower than 60 percent of the local average, the latter would be used as the basis for contribution from both employee and employer, no matter how low the individual's actual wages. For the individual with a high income, monthly wages exceeding 200 or 300 percent of the local average would not be met by contribution demands. Anomalies and exceptions are reported to and jointly resolved by the Ministries of Labor and Finance.

In general, the state pension would provide a basic pension equivalent to 20 percent of social average earnings plus that based on the earnings of the accumulations of the individual account. Participants were divided into three groups according to the date of employment or retirement, namely new employees, current employees and current pensioners. New employees are those employed after the introduction of the 1997 plan; current employees were employed before the reform and are yet to retire. Current pensioners are those who began their employment before the reform and have already retired. According to Document 26 of 1997, there should be different formulae for the state pensions of the three groups. The new employee who contributes for at least 15 years and reaches retirement age will receive a monthly pension equal to 1/120 of the total accumulation of the individual account at retirement plus a basic pension equal to 20 percent of his or her own provincial average wage. Thus, a worker who contributes for 15 years would receive an average pension of 36.5 percent of his or her final wage. Those who contribute for 20, 25, 30, 35 and 40 years, would receive 42, 47.5, 53, 58.5 and 64 percent of their final year's wage respectively. Current employees, who contribute for at least 10 years, including the time before the introduction of individual contributions, would receive the pension accumulated in the individual account, the basic pension and a transitional pension paid by the pool fund. The transitional pension is the benefit paid for the years of service before the introduction of the individual account system. For new employees who contribute for less than 15 years and current workers for less than 10 years, no basic pension is paid while the individual account pension is granted in a lump sum. Current pensioners are paid benefits according to the original method before reform, based on the State Document 104 of 1978, the Ministry of Labor Document 275 of 1973, the State Document 6 of 1995 and the State Document 26 of 1997.

2.5 FUND SUPERVISION AND ADMINISTRATION

Before 1998 there were three ministries independently supervising and administering pension schemes for different population groups in China. The Ministry of Labor was responsible for the urban pension insurance system of enterprise workers; the Ministry of Personnel was responsible for employees of organizations and institutes and the Ministry of Civil Affairs for farmers' pensions. In addition, 11 industrial ministries such as the Coal Industry were responsible for the administration or operation of pension schemes for their industrial sectors under the supervision of the Ministry of Labor. Under the 1998 institutional reforms all functions in the field of urban pensions were transferred to the Ministry of Labor and Social Security (MOLSS). While MOLSS is responsible for the general supervision, a separated agency, i.e. the MOLSS Social Insurance Administration Bureau, is an executive agency for contribution collection, benefit payment and organization or even provision of personal social services. According to the principle that administrative service should be separated from fund management, the Ministry of Finance required in the year of 1998 that all contributions must be deposited monthly in the accounts of the finance authorities at all levels. All expenditures are supervised and approved by both finance and social security authorities. In view of the fact that the financial market in China is far from developed, i.e. few financial instruments exist and no normative market regulations prevail, all accumulated funds except the reserve funds (equivalent to two months' benefits) are invested in government bonds, safe from the risks of the financial market.

2.6 FUNDING OF THE INDIVIDUAL ACCOUNTS

In most localities (i.e. provinces or counties, depending upon the unit of pooling) the current individual account acts as a bookkeeping device, keeping track of contributions plus imputed interest (at a rate determined by the government). Generally the money in the account is paid out to current pensioners as soon as it comes in. When an employee reaches retirement age, the accumulation in his or her account (in most cases just pension points rather than real funds) is converted into an annuity and paid to the retiree out of contributions by other, younger workers, who are building their own national accounts. In this sense, the present individual account is still on a pay-as-you-go basis. In fact, the funds in individual accounts are far from adequate in most localities and in many poor areas the individual account is just notional since there is no money in these accounts. Higher rates of contributions from enterprises can be expected when these people reach their retirement age. Otherwise the government would have to be responsible for part of the pension liabilities, increasing pressure on the future government budgets.

On December 25th, 2000, the State Council released the "Pilot Plan for Perfecting Social Security System in Cities and Townships". The main message of the plan was as follows: First, the notional individual account adopted in most provinces is not able to meet the financial burden of pension payment due to the demographic changes in China. Therefore, a new plan of funding the individual account must be implemented. Second, social pool and individual accounts should be managed separately and funds accumulated in individual accounts should not be used as pension payments before individuals' retirement. Third, funds in individual accounts managed by social security insurance agencies at provincial level should be either deposited into banks or invested to buy government bonds. Investment in other financial assets, including equities and housing, was forbidden. Fourth, after contribution from the employers was stopped, payments into individual account were entirely contributed by individual employees and had fallen from 11% of the wage bill to the 8%. Following the release of the plan, Liaoning Province was selected by the State Council as the pilot area to implement the plan in July 2001.

Liaoning Province, an old-industrial-base in Northeast China, has a higher pension dependant ratio than other provinces. Spending on pensions has been rising rapidly from 17.9 billion yuan in 2002 to 33 billion yuan in 2006 along with the increase in the numbers of retired pensioners. In the past five years, since the launch of the pilot plan, Liaoning had received transfers of 47.3 billion yuan from each level of government, of which 39.25 billion came from the central government while 8.05 billion was financed by the provincial and local governments. According to the statement of central government, Liaoning model cannot be followed by other provinces. This means that for the majority of provinces, pension liabilities should be shared between provincial and local governments within their region.

3. NEED FOR FURTHER REFORM

After about 30 years of reform since the late 1980s, a pension system fit for a market-oriented economy is taking shape in China. However, as reform, readjustment and restructuring are taking place in the politics as well as economy, the current pension system faces many problems. The following aspects of the pension system need further reform.

(1) Establishing a wider pooling system: Due to the required pooling, under the current system responsibility for paying pensions is shifted from individual enterprises to groups of enterprises. It must be pointed out that the pooling system does help to share risk across enterprises and reduce the pension burdens of those enterprises with financial problems. However, the redistribution of pension costs was only amongst a relatively small number of enterprises, usually within a city. It is noteworthy that most pension pooling is conducted at the county, municipality or prefecture level. Social pooling at provincial level is only experienced in 13 provinces including Beijing, Shanghai, Tianjin, Shanxi, Heilongjiang and Jilin. In other areas it is in fact a county/city pooling scheme rather than a social/national pooling scheme.

Two reasons can explain the low level of pooling. The first is the highly decentralized social insurance system (each province and city has its own social insurance department to handle policy matters as well as its own Labor bureau to administer social insurance funds) which readily lends itself to inconsistent enforcement. Many localities intentionally differentiate their schemes from others and introduce non-transparency in order to retain authority over their programs. The weak enforcement power of local insurance agencies makes difficult the tasks of collecting contributions or levying penalties. The second reason is the uneven development. In general, rich localities are unwilling to join the social pooling system due to the surplus in their pension schemes. On the other hand, poor localities have difficulty joining the pool because their provincial governments fear the heavy burden, described by them as "the pension bomb". It is the above reasons that make city pooling difficult and provincial pooling even more so. Although the State Council required in 1997 that all the pools be extended to the provincial level by the end of 1999, and called for provincial level of pooling again in 2000 and 2005, difficulties in reconciling inter-provincial interests persist and may impede the establishment of a wider pooling system.

(2) Alleviating the financial burden of enterprises: According to the estimates of some experts, the rate of contribution to old-age pension insurance is within the capacity of state owned enterprises, but the combined social security contribution rate, including unemployment and medical insurances, is much higher than in the developed countries. In the long run, enterprises would not be able to keep paying all the fees. Indeed, the high contribution rates are already regarded by some as the major cause for wide-spread evasion of these fees by many state owned enterprises. Therefore, it is necessary to reduce the rate of contribution from the state owned enterprises to a more sustainable level, so as to relieve their financial burden and to promote future restructuring reforms.

(3) Expanding the coverage of private sectors pension funds: By December 2005, most of the 174.44 million participants in pension funds belonged to state-owned and collective enterprises. Only 17% of employees of the other sections of the private sector were covered for pensions. According to a survey conducted by the Henan Province, the rate of coverage in private sector was less than 50%, of which only 19.2% private enterprises provided old age insurance for their entire workforce. In general, the rate of coverage was higher for managers and skilled workers than that for temporary employees and migrant workers.

Some regions are considering expanding the coverage of pensions to the growing number of migrant workers who lack urban residency status in the urban areas. But two problems remain. Firstly, private employers are still unwilling to provide pensions to temporary workers because of increased pension costs. Secondly, under the current regulation, while migrant workers can participate in a pension plan in urban enterprises, they have to claim back their pension rights from the place where they originally came from. Due to the fact that contribution to employee individual account is portable while the funds in the social pool are not portable, the current requirement will increase the pension burden on labor exporting regions, which are in general economically underdeveloped to start with.

(4) Tightening the supervision of funds: The inadequate supervision of pension funds has become a major problem in China. For example, in the year 2004 alone, cases of funds embezzlement were reported in 16 provinces. The Ministry of Labor and Social Security dealt with 96 such cases of embezzlement during the Tenth Five-Year Plan period. A many as 30% of the embezzlement scandals involved local government officials and social insurance agencies. The widespread incidence of embezzlement has been attributed to inadequate laws, lack of transparency and inadequate public supervision. It has been suggested that social security funds are misused because they are managed separately from the fiscal budget, and that an ideal way to cope with this problem would be to bring the off-budget old age insurance funds into the budget. However this goal cannot be achieved until the fiscal management capacity (including for budget preparation and execution) has improved at all levels of governments. In the meantime, coordination between relevant departments should be strengthened so as to improve the security of insurance funds. Most importantly, the principle of separation in fund collection and appropriation must be followed. The ministries must also make public the regular reports on the collection and utilization of the funds, so that periodic reports can be subjected to public scrutiny.

(5) Raising the rates of returns on funds investment: As noted above, the State Council had stipulated in 1995 and in 1997 that old-age pension funds could only invested in state treasury bonds or in bank deposits, and could not be used for any other investment. But at present when the relevant laws still need to be enacted, the law enforcement is rather weak and China's capital market is not mature. It is true that bank savings and treasury bonds can keep the pension funds safe and secure, but in the long run, the government-controlled investment policy generates low returns for pension funds. With the deepening of old-age pension insurance system, there will be large increase in accumulated pension funds. And how to widen the investment channels for old-age pension funds so as to get higher returns for ensuring that sufficiently high growth is generated to cover payments for China's rising population of the old is one of the major concerns for both policy makers and pension researchers.

(6) Raising the returns from funds investment: The government should make use of public resources from every channel in order to raise sufficient funds for pension payments. Since 1998, the central government has begun to subsidize local pension shortfalls. The total subsidies increased from 2 billion Yuan in 1998 to 77.4 billion Yuan in 2006. It certainly helps in facilitating pension payments in some provinces. However, a more permanent solution to China's pension worries requires that responsibilities for old-age pensions must be clearly defined among different levels of government.

REFERENCES

He, P. (2000) Social Security System in Enterprise Reform, Economic Science Press, Beijing.

Jia, K. (2000) "Adjusting Composition of Fiscal Expenditures is an Important way to Reduce IPD", Public Finance Research, June, Beijing.

Song, X. W. (2001) Report on China's SOCIAL Security System Reform and Development, Renmin University Press, Beijing.

Wang, X. J. (2000) China's Pension System and its Comment, Economic Science Press, Beijing.

World Bank (1997) Old Age Security: Pension Reform in China, Washington DC.

Zhang, X. Y. (2003) "State Pension in China", in Promoting Private Pension in China, The University of Bath, London.

* I thank Professor Bhajan Grewal for valuable suggestions for the improvement of this paper. Comments received from an anonymous referee were also gratefully accepted.

(1) It is noticeable that in the 1951 regulation there was different treatment for management and workers: the benefit rate for the former was higher than that for the latter.

(2) The first Five-Year Plan was 1953-1957; the second Five-Year Plan 1958-1962; the third Five-Year Plan 1966-1970; the fourth Five-Year Plan 1971-1975; the fifth Five-Year Plan 1976-1980; the sixth Five-Year Plan 1981-1985; the seventh Five-Year Plan 1986-1990; the eighth Five-Year Plan 1991-1995; the ninth Five-Year Plan 1996-2000.

(3) Document 104 of 1978.

(4) This idea was piloted in Fujian province in July 1989. Subsequently, from 1991 to 1992, two different approaches were experimented respectively in Shenzhen and Hainan and later approved by the State Council. In 1993, Shanghai proposed a plan, which was accepted by the State Council as one of the two recommendations in March 1995.

X. Y. Zhang, Institute for Fiscal Research, Ministry of Finance, Beijing
Table 1: Pension entitlements under alternative Plans, % of
final wages

Years of          Plan 1    Plan 2    Plan 3
contribution

15                  24       38.5      36.5
20                  32        --       42.0
25                  40        --       47.5
30                  48        --       53.5
35                  56       63.5      58.5
40                  64       69.8      64.0
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Author:Zhang, X.Y.
Publication:Public Finance and Management
Article Type:Report
Geographic Code:9CHIN
Date:Jan 1, 2009
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