Economic review

China raises pension amid pressure, benefits 100 mln retirees

2017-04-17 08:52:00 (Beijing Time)         CGTN

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China has continued to synchronize enterprises and institutions to raise the basic pension for over 100 million retirees in 2017, but at a milder pace amid pressure from economic slowdown and aging population.

The central government has approved the average monthly payments for both enterprise and institution retirees to be increased by about 5.5 percent from the 2016 level.

The Chinese Ministry of Human Resources and Social Security (MOHRSS) and Ministry of Finance jointly issued a notice about the adjustment on Thursday.

It is estimated that over 89 million enterprise retirees and more than 17 million institution retirees will benefit from the adjustment.

This is the second time that both enterprises and institutions have adjusted basic pension, since the first simultaneous adjustment in 2016.

This year's lift was slower than the 6.5-percent rise in 2016, which is attributed to moderating economic growth and a rapidly aging society by authorities.

How is adjustment determined?

The 5.5-percent increase this year is reasonable given a less anticipated consumer price index (CPI) as well as slower salary and GDP growth, said Jin Weigang, head of the social security research institute under the MOHRSS.

"The CPI just went up two percent year on year in 2016, less than the three-percent predictive index. It was a moderate inflation, and reflected the price level was effectively controlled and basically stable," said Jin.

"The average salary level of employees grew by about 6.3 percent year on year in the first three quarters of last year, while China's annual GDP growth stood at 6.7 percent in 2016, both slowing from a year earlier," Jin added.

China has improved basic pension for enterprise retirees for 13 consecutive years by at least 10 percent annually between 2005 and 2015 before the pace decelerated in 2016.

The 10-percent lift pace was thanks to low pension levels in previous years and the country's rapid economic growth, according to Chu Fuling, a social security researcher with the Central University of Finance and Economics.

Chu pointed out the growth rate of the basic pension should be above that of CPI but should not surpass that of salary for the long run. He said the pension rise would be reasonable if between the increase rates of CPI and salary.

How is adjustment satisfying?

The monthly pension level has increased from about 640 yuan (93 US dollars) per capita in 2005 to 2,400 yuan (349 US dollars) in 2016.

However, the number is still far from satisfying for many retirees.

"Though my pension has increased each year, so has the price of meat, oil and vegetables," said Li Guoli, who retired from a private enterprise in central China's Wuhan city. "With my expenses going up, I have little money left to spare."

An international rule of thumb assumes that retirees can maintain the standard of living as before retirement if their pension incomes arrive at about 70 percent of pre-retirement salary, and that their life quality will decline if the ratio is below 50 percent.

Jin put the ratio at 67 percent in 2014, while Chu calculated the ratio had gradually fallen from around 60 percent since 2005.

Despite the different estimations, it is impractical to believe that retirees can live a quality life only by the basic pension.

Moreover, the accelerated aging population results in a heavier burden on the pension funds. The number of people aged over 60 is predicted to reach 255 million, 17.8 percent of the total population in China by 2020.

Seven provinces even saw pension fund deficits in 2016.

Part of state capital should be used to replenish the social security coffers and fiscal input should be expanded to address pension funds shortage, suggested Xiang Yunhua, a social security professor at Wuhan University.

Implementation of enterprise annuity should also be sped up so as to play an important role, Xiang added.