China's Pension System

China’s Public Pension System
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China’s Public Pension System
Introduction
Over the past fifteen years, China has made significant progress in extending pension coverage to its citizens. Before 1997, government-owned companies offered their employees legacy pensions, which did not follow the monthly payments plan. Since 2011, China has had a contributing pension scheme with over 280 million urban residents covered by 2011 (Yu, 2021). It has recently launched a pension program for rural employees, which has expanded to include over 460 million people by the end of 2012 (Chen et al., 2021). Assessing the system is imperative to determine its structure, flaws, and strengths it encompasses and identify whether there are any changes required for the system to ensure sustainability, efficacy, and performance.
Structure of the System
In its current form, the “Chinese pension system” has four primary parts, integrated into the broader national system. The Urban Enterprise Pension System (UEPS) serves city workers mainly employed by major commercial companies and state-owned organizations. The urban pension fund requires that the workers disburse 16% of the basic salary to the national pension fund every month (Yu, 2021). The New Rural Pension Scheme enables rural employees to make voluntary contributions to individual accounts that local and national governments subsidize.
The system follows a Pay As You Go model, where the individual’s payments in the account accrue at a state-determined interest rate. The worker receives a pension based on the accumulated funds when they retire. The UEPP contribution rate is 28% of the payer’s basic salary, with the employee paying 8% to an individual account (CLB, 2021). In comparison, the employer pays a determined 20% to the PAYG pension account or a social account (CLB, 2021). The pension’s beneficiaries start receiving payments once men and women in blue-collar employment attain 60 and 50 years...