Personal pension accounts nearly dry

• Source: Global Times
• [02:48 July 15 2010]
• Comments

By Kang Juan

The nation's personal retirement accounts are a fraction of what they once were, as most of the 1.3 trillion yuan ($192 billion) in the accounts has been used to pay the pensions of current pensioners, a leading expert on the funds told the Global Times Wednesday.

However, an unnamed government official quoted by the Beijing News said there's no need for individuals to worry about their accrued pension rights, as the government is injecting money into the accounts to cover the massive shortfall.

Zheng Bingwen, a pension-fund expert at the Chinese Academy of Social Sciences (CASS), said the government has injected 130 billion yuan into individual accounts since an official order was issued to do so in 2005.

According to figures released by the Ministry of Labor and Social Security, the shortage in individual funds was 36 billion yuan in 2000, but it soared to 740 billion yuan by 2004.

For the last 30 years, the Chinese government has gradually been turning its State-owned enterprise-financed retirement system into a State-sponsored social security system.

According to the present basic pension plan, 8 percent of an employee's salary goes into his personal retirement account, which is maintained by the employee alone, and his employer should contribute 20 percent of his salary to the public pool, which is used to pay the current pensioners.

However, a large number of current retirees stopped working before the mandatory pension system was imposed in 1997, or they worked only a short time after that and didn't contribute enough to pay for their life after retirement.

As a result, they must now depend on the government to fund their pensions.

But some poorer provinces are having trouble keeping up with the demand from retirees, so local authorities have been taking money from the pension accounts of young and middle-aged workers to make up the difference. The result is the massive shortfall in personal retirement accounts.

"The cost of reforming the system hasn't been solved yet in China," Zheng said, adding the Latin American countries better address the problem by issuing government bonds.

Yang Yansui, a professor specializing in social insurance at Tsinghua University's School of Public Policy and Management, noted that the shortfall in individual pension accounts is unique to China, due to the absence of laws regulating pension funds.

"The shortfall will increase the burden on taxpayers, which is likely to trigger social problems," she warned.

Shen Shuguang, director of the Center for Social Security Studies at Zhongshan University, noted that aside from using national finances and State assets to make up for the shortfall, raising the retirement age is another option.

The official retirement ages are currently 60 for men and 55 for women.