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Pensions needed as elderly population soars
October 12, 2011, Wednesday
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SHANGHAI'S elderly are everywhere. Stretching in morning exercises in parks, sunning themselves on benches during the day and dancing on the sidewalks at twilight, they are just one of many constant reminders of the daunting challenge China faces in providing for its fast-aging population.
Less than a third of its elderly are covered by pension schemes today, and though programs are now being expanded to cover a wider range of pensioners, the problem is likely to get worse before it gets better.
China is now reaching a "tipping point" - as a percentage of the total population, China's workforce has peaked while the number of elderly is soaring, says Richard Jackson, director of the Global Aging Institute at the Center for Strategic and International Studies (CSIS) in Washington, DC.
This is mainly due to the family planning policy, which combined with rising affluence has accelerated a sharp decline in fertility. "The fertility decline was extremely steep, from five children per women on average in the early 1970s to two by the late 1980s and now 1.6," he adds.
While the surge in the elderly population is an issue confronting all industrial societies, China faces a much bigger challenge than many. Its average income and level of social and economic development are much lower than, for example, Japan or South Korea. "The challenge for China is bigger because it has not yet had time to put in place full pension protections of a modern welfare state," asserts Jackson.
As the Chinese population ages rapidly, the government faces the daunting task of expanding pension programs for not only for urban workers but also farmers and the urban unemployed. All this leaves a looming collision of demography and policy that's likely to compound concerns about social stability and economic growth in the country, say a range of experts.
The country's remarkably strong economic growth over the past three decades has brought China's population of some 1.3 billion unprecedented prospects of affluence and longevity.
Longer life expectancy thanks to improved living standards and health care means that nearly a third of the population, or 438 million Chinese, is expected to be over the age of 60 by the end of 2050, predicts the United Nations, compared with a world average of about 22 percent and is more than double the 178 million over-60s in China in 2010.
Last year, there were 7.8 working adults (aged between 15 and 59) for every elderly person in China. But the United Nations predicts that the ratio will fall so that by 2050, there will be 2.4 working adults for every elderly person.
Meanwhile, the gap in living standards between the wealthy coastal cities and the poorer rural areas is widening.
While state pensions are woefully inadequate in urban areas, they're virtually nonexistent in the villages.
"The biggest challenge is to create some degree of equality between rural people and urban people," says Pieter P. Bottelier, professor of Chinese studies at Johns Hopkins University in Washington, DC.
Most of China's work on pension reforms has focused on urban areas, where workers once enjoyed relatively generous cradle-to-grave benefits at state-owned companies. Since state enterprise reforms began in the 1980s, however, local governments have taken up the responsibility for managing basic pension systems.
In 1997, China launched a pay-as-you-go system so employers pay 20 percent of employees' salaries into pension accounts while employees pay 8 percent of their salaries every month, for a minimum of 15 years.
The program is based on "defined benefit" formulas, so that when they retire (at 60 or 65, depending on the sector), employees receive a predetermined monthly income based on tenure, salary and age regardless of how their investments have performed.
Part of the problem is that while the central government sets the policies, it's up to local governments to run the programs, leaving a mish-mash of practices. "China's pension system is so fragmented," says Ce Shen, a professor of social work specializing in China's pension system at Boston College. The ideal, he says, would be to set up a unified, national pension system.
Jackson says that compared with the urban schemes, implementing rural schemes to accommodate migrant and casual labor is a different challenge altogether. "China has such a large informal sector," he notes. "It is very difficult to force compliance when workers do not have formal contracts or were hired casually."
According to the country's Ministry of Human Resources and Social Security, 257 million Chinese were enrolled in basic urban pension programs as of the end of 2010, while 102.7 million rural Chinese were part of a rural pension program launched in 2009.
While the problem of providing for urban workers is daunting, it pales in comparison with dealing with China's 242 million migrant workers when they retire.
The rural pension program launched in 2009 consists of two tiers - the first is guaranteed and paid by the central government at a rate of 55 yuan a month, and the second is supported by individual contributions ranging from 100 yuan to 500 yuan a month.
But most migrant workers balk at paying a contribution of even just 100 yuan. "Even the lowest pension premium is too high for them," says Du Peng, director of the Gerontology Institute at Renmin University in Beijing.
Adapted from China Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. To read the original, please visit: http://bit.ly/pJjE84
Less than a third of its elderly are covered by pension schemes today, and though programs are now being expanded to cover a wider range of pensioners, the problem is likely to get worse before it gets better.
China is now reaching a "tipping point" - as a percentage of the total population, China's workforce has peaked while the number of elderly is soaring, says Richard Jackson, director of the Global Aging Institute at the Center for Strategic and International Studies (CSIS) in Washington, DC.
This is mainly due to the family planning policy, which combined with rising affluence has accelerated a sharp decline in fertility. "The fertility decline was extremely steep, from five children per women on average in the early 1970s to two by the late 1980s and now 1.6," he adds.
While the surge in the elderly population is an issue confronting all industrial societies, China faces a much bigger challenge than many. Its average income and level of social and economic development are much lower than, for example, Japan or South Korea. "The challenge for China is bigger because it has not yet had time to put in place full pension protections of a modern welfare state," asserts Jackson.
As the Chinese population ages rapidly, the government faces the daunting task of expanding pension programs for not only for urban workers but also farmers and the urban unemployed. All this leaves a looming collision of demography and policy that's likely to compound concerns about social stability and economic growth in the country, say a range of experts.
The country's remarkably strong economic growth over the past three decades has brought China's population of some 1.3 billion unprecedented prospects of affluence and longevity.
Longer life expectancy thanks to improved living standards and health care means that nearly a third of the population, or 438 million Chinese, is expected to be over the age of 60 by the end of 2050, predicts the United Nations, compared with a world average of about 22 percent and is more than double the 178 million over-60s in China in 2010.
Last year, there were 7.8 working adults (aged between 15 and 59) for every elderly person in China. But the United Nations predicts that the ratio will fall so that by 2050, there will be 2.4 working adults for every elderly person.
Meanwhile, the gap in living standards between the wealthy coastal cities and the poorer rural areas is widening.
While state pensions are woefully inadequate in urban areas, they're virtually nonexistent in the villages.
"The biggest challenge is to create some degree of equality between rural people and urban people," says Pieter P. Bottelier, professor of Chinese studies at Johns Hopkins University in Washington, DC.
Most of China's work on pension reforms has focused on urban areas, where workers once enjoyed relatively generous cradle-to-grave benefits at state-owned companies. Since state enterprise reforms began in the 1980s, however, local governments have taken up the responsibility for managing basic pension systems.
In 1997, China launched a pay-as-you-go system so employers pay 20 percent of employees' salaries into pension accounts while employees pay 8 percent of their salaries every month, for a minimum of 15 years.
The program is based on "defined benefit" formulas, so that when they retire (at 60 or 65, depending on the sector), employees receive a predetermined monthly income based on tenure, salary and age regardless of how their investments have performed.
Part of the problem is that while the central government sets the policies, it's up to local governments to run the programs, leaving a mish-mash of practices. "China's pension system is so fragmented," says Ce Shen, a professor of social work specializing in China's pension system at Boston College. The ideal, he says, would be to set up a unified, national pension system.
Jackson says that compared with the urban schemes, implementing rural schemes to accommodate migrant and casual labor is a different challenge altogether. "China has such a large informal sector," he notes. "It is very difficult to force compliance when workers do not have formal contracts or were hired casually."
According to the country's Ministry of Human Resources and Social Security, 257 million Chinese were enrolled in basic urban pension programs as of the end of 2010, while 102.7 million rural Chinese were part of a rural pension program launched in 2009.
While the problem of providing for urban workers is daunting, it pales in comparison with dealing with China's 242 million migrant workers when they retire.
The rural pension program launched in 2009 consists of two tiers - the first is guaranteed and paid by the central government at a rate of 55 yuan a month, and the second is supported by individual contributions ranging from 100 yuan to 500 yuan a month.
But most migrant workers balk at paying a contribution of even just 100 yuan. "Even the lowest pension premium is too high for them," says Du Peng, director of the Gerontology Institute at Renmin University in Beijing.
Adapted from China Knowledge@Wharton, http://www.knowledgeatwharton.com.cn. To read the original, please visit: http://bit.ly/pJjE84
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