Pension reform to increase

The increasing aging population and the expanded gap between pension fund revenue and expenditures has made China speed up its reform of the social security system.

A report from the Development Research Centre under the State Council said that the gap between pension fund revenue and expenditures reached 7 billion yuan (US$843 million) in the country's 21 provinces, municipalities and autonomous regions in 1998. The pension fund deficit further expanded to 25 regions at the provincial level in 1999.

The centre said China would face a serious aging population problem between 2020 and 2030, because of a babyboom in the 1950's and 1960's, and the strict one-child family planning policy established in the 1970s.

China's current pension system, or the pay-as-you-go system, was adopted in the 1990's. It consists of social pooling and individual fund accumulation, with money coming from employers and employees. Employers and employees must deposit money into the accounts regularly.

However the social pooling system has always been short of money because some enterprises or government institutions do not have enough money and some funds have been diverted for non-social security uses.

Individual funds were often transferred to social accounts to pay pensions of retired people, draining the accounts.

The situation is growing more acute because the proportion of China's elderly population to the whole is growing larger by the day.

Experts suggest China should establish a new system which combines the best of the pension models worldwide, including those in Australia, Chile, Singapore and the United States.

Unlike China's pay-as-you-go system, which uses the current generation's money to support the generation before it, the pension system in most of these countries are accumulative systems where funds can grow and each individual will see to the development of their own account.

"The new system will have to guarantee stable financing channels," said Gao Qiang, vice-minister of finance.

Gao suggested China levy a social security tax instead of the current collection of social security funds.

The Ministry of Finance is co-operating with relative government departments to work out a new social security tax, although the tax is controversial, he said.

Ji Jinbiao, an associate professor with the Central University of Finance and Economics, said taxation is the most effective way to raise the necessary funds for the social security programme.

"Levy of a social security tax could give strong legal support to fund raising, and make collections constant and uniform across the country," he said.

More importantly, proceeds from the tax could be better protected from misappropriation, because such funds will be used with the supervision of fiscal departments and accounting agencies.

China could let State shares of listed companies go into circulation in an effort to raise funds for social security purposes, Gao said.

The country could also increase the issuance of lottery tickets to expand social security funds.

Zhang Zuoji, minister of labour and social security, said more than 98 per cent of pensioners in China had received their monthly payment on time as of the end of June.

During the 18 months prior to June, more than 17 billion yuan (US$2.0 billion) worth of defaulted pension payments had been paid in addition to 400 billion yuan (US$48.2 billion) worth of current payments.

According to a government decree issued last month, all localities around the country are required to pay 100 per cent of defaulted pensions and allowance to ensure the basic living standard of laid-off workers by the end of August.

In a bid to avoid defaulting on pension payments again, the country has started to switch pension distribution from enterprises to banks and post offices.

More than 18 million people are now receiving pension payments through banks and post offices. By the end of the year, all pensioners will obtain their payments from banks and post offices.