文字实录 · Transcript
In our last episode of Digest China, we discussed whether it's a good idea to make Chinese people retire at a later age. The discussion came after the Ministry of Human Resources and Social Security's June announcement that it will gradually push back China's retirement age by five years. While the citizens we talked to showed different opinions on the government's push, the scholars we interviewed all support the idea. But they pointed out the opposing voices reflect deeper problems, such as the inequality existing in China's current pension system and the aging of the Chinese population. However, there are more questions for individuals to think. For example, how much money can we receive after we retire? At what age should we start planning our retirement? Does China have enough money to support its aging population? Before we get into these questions, let's first hear what people have to say.
Reporter: How much money do you need to support yourself each month after you've retired?
Respondent: About 3,700 yuan.
Respondent: My living expenses are about 3,000 yuan. If I'm not sick, I wouldn't have any trouble, since I have my health insurance. But if I get really sick, it would be very difficult. Among the elderly people, most don't own cars and houses, and they suffer from diseases.
Respondent: Based on the current standard of living, I wouldn't ask for too much. But to survive, I think 5,000 yuan is enough.If prices keep going up like this，then 5,000 yuan will definitely not be enough.
Respondent: Never thought about it. Based on our current Gross National Product (GNP), when I retire, which is in about 30 years, I think the basic pension should be above 8,000 yuan.
Reporter: What will you do after you retire? Have you ever planned it?
Respondent: I want to do something that is beneficial for the society, like engaging in education or charity work.
Respondent: (I'll) travel with my children and family after I retire.
Respondent: If I'm capable, I will still want to do a lot of things.
Reporter: Do you have any retirement plans?
Respondent: No, I rarely think about it, but I did buy commercial insurance.
Respondent: Not necessarily a plan, I just think I should make more money and save more.
Reporter: What do you think to be the most secure source of income after you retire?
Respondent: Pension, first and foremost.
Respondent: Definitely my pension. It'll be the only secured source of income.
Respondent: It's pension.
Respondent: I don't know if I will do business successfully, and not lose money, but I've been contributing social security taxes. Hopefully by the time I retire, (the government) will give me my pension promptly and accurately; then I think my basic living will be guaranteed.
The basic idea for a pension system is citizens pay social security taxes to fund current pensioners. When a person retires, he or she will be funded by the younger generation of tax payers. According to China's 2010 Social Security Law, China's basic pension system divides people into four categories: urban employees, State employees, rural residents, and urban residents, which includes self-employed, part-time employed and unemployed residents. China's basic pension system consists of social pooling and each citizen's individual account. Each month, urban employees pay 8 percent of their wages as social security taxes to their individual accounts. Employers pay an amount equal to 20 percent of each employee's wages to the social pool, which is managed by the local government.
Individual accounts are in fact, virtual, because employees will not be able to cash out their pension until they retire, and have contributed to their individual accounts for at east 15 years. Their pension will come from two sources: first, the money allotted to them from the big, social pool; and, second, the money from their individual accounts. State employees, however, do not pay monthly social security taxes from their work wages by themselves. The State revenue pays for them. They receive pension directly from the State after they retire. Rural residents and urban residents can participate in the basic pension system by contributing social security taxes to their individual accounts for at least 15 years. Their pension will come from their individual accounts as well as a base pension provided by the State. According to the Ministry of Human Resources and Social Security's June report, China's basic pension system covers 283 million urban employees, 358 million rural residents and about 5.4 million urban residents. Perhaps the first question that comes to most people's mind is: How much money will I receive when retired, after contributing social security taxes for so many years? We directed this question to Xie Yu, who works as a human resources officer at a State-owned company in Beijing.
Feng Xin: Mr Xie, I have a question. For urban employees, we pay a certain amount of social security taxes each month, but it is very difficult to estimate how much money we will receive after we retire. Why is that?
Xie Yu: This is because the calculation is very complex. It's related to how much we pay each month as well as how long we pay. To summarize, a person's monthly pension is equal to a monthly base pension provided by the State plus the money from his or her individual account. Whereas the former comes from the social pool, the latter comes from the person's individual account. However, the base pension is calculated by a series of fractions and function, depending on a number of factors, such as the average salary of the local population, individual salary, years of contribution and so on. We can tell from this formula that how much we will receive after we retire – let's put it simply –the more you pay and the longer you pay, the more you will receive.
Feng Xin: Since the calculation is so complex, how can people make sure the money they receive is the right amount?
Xie Yu: Well, our pension is currently calculated by the social insurance fund management centers. They have their own systems of calculation. I think we just have to trust them.
Since the calculation of one's pension is so complex, is it possible to get a rough idea of how pension might differ from one social group to another? We talked to Yang Yansui, a leading expert in China's pension system.
Feng Xin: I read one of your interviews. You said between the premier and a farmer, the base pension should be more or less the same. What did you mean?
Yang Yansui: We have three pension systems. State employees do not pay social security taxes, but they receive a pension, which is as much as 80% to 95% of their salary from the State. Urban employees pay taxes, but the money they receive is decreasing, because their money is not being invested, so it's actually devaluating. (Urban and rural) residents start contributing social security taxes from the age of 16. When they retire at 60, the government will provide them with a subsidy. They will also get money from their individual accounts. Among China's three pension systems, I think the third one is most reasonable. Individuals save their own pension, whereas the government subsidizes individuals. Responsibilities are clearly separated between the government and individuals. However, the problem of this system is that individuals' money is all kept in local banks without inflation-proof measures. The local banks pay an interest at a one-year deposit rate. I have deposited for 30 years. Why do you give me a one-year deposit rate?
Feng Xin: What do you mean by "one-year deposit rate"?
Yang Yansui: I mean the interest is calculated at a one-year interest level. This is too low, because people cannot take money out until they reach the age of 60 or even 65. It's a fixed deposit account. It's like I have a fixed deposit for 35 years; how can you calculate my interest at a one-year interest level (but not a 35-year level)? Therefore, rural and urban residents' pension is devaluing. That's a problem, but the structure of the system is very good. The government subsidizes individuals who make their own savings. About 70 countries have implemented such a system. The government provides pensioners with basic living costs, and individuals improve their quality of living with their own savings. This is a combination of social pooling and individual accounts. It's a very good idea. But when the country was implementing the policy in 1998, tens of millions of State employees were laid off to boost efficiency. Their average age was only 47, but they had to retire. These people were not included in the State budget, so the government used the money in young people's individual accounts. The money was indeed diverted.
Yang Yansui: The problem we are having now is that the money in individual accounts was diverted and the accounts became empty, so the 1.9 trillion yuan is only an "item" in the State revenue's account. There's no actual money. I saw a lot of discussion online. It's no longer a combination of (government and individuals' responsibilities). It's mixed up. To solve the problem, we need to make (the State employee) pension system like the residents' (system), where the government provides subsidies. Employers contribute to the social pool, and employees receive subsidies from the government when retired. The money in individual accounts should be invested in the market to maintain and increase its value.
Yang Yansui: State employers should also gradually implement such a system. I think the pension for State employees should be reduced and eventually be replaced with the base pension. The government's subsidies for farmers, urban employees and civil servants should all be merged. They are all given to pensioners for a basic living; that's called "base pension". They only guarantee elderly people will have enough food. No matter how old China becomes, we have to make sure elderly people have enough food. This is a 5,000-year-old culture. We have to make it.In terms of having enough food, who eats more? The premier or a farmer?
Feng Xin: The same.
Yang Yansui: Since this is the base pension provided by the government and used for basic living, there shouldn't be big differences – unless one's life is more expensive than another. It's a question of democracy as well as civil rights.
If the money in young people's individual accounts are diverted to supporting current pensioners, does China have enough money to support its current social security taxpayers when they retire? According to the 2011 China Pension Report published by the Chinese Academy of Social Sciences, the total revenue of China's basic pension fund reached 1.3 trillion yuan in 2010. Of that, the government paid about 1 trillion yuan to current pensioners, leaving a balance of more than 280 billion yuan. By the end of 2010, the accumulated balance reached 1.5 trillion yuan. The Ministry of Human Resources and Social Security's latest balance report also shows China's basic pension fund remains at more than 1.9 trillion yuan as of 2011. However, many scholars are not very optimistic and estimate that China is currently facing a debt shortfall of 1.8 to 2.5 trillion yuan. But how do we make sense of these numbers? We called Zheng Bingwen from our studio. He is the lead author of the 2011 China Pension Report.
Feng Xin: Professor Zheng, the Ministry of Human Resources and Social Security's report shows there's no debt shortfall in our current pension fund, but many scholars believe the shortfall is huge. Why is that?
Zheng Bingwen: The shortfall implies several things. The first implication is that our pension system is a combination of social pooling and individual accounts. The establishment of such a system suggests there should be actual money in the accounts, but most accounts are empty. The money is used to pay current pensioners, the elder generation. That is to say, the individual accounts become empty. This can be considered a shortfall.
Feng Xin：So, you are saying, theoretically, the money in the individual accounts is supposed to belong to individuals. It's not supposed to be mixed up with the money in the social pooland used for paying current pensioners. But our problem is that the money in individual accounts is diverted to the social pooland therefore the accounts become empty. The so-called debt shortfall of 1.8 to 2.5 trillion yuan is the sum of all the empty accounts. Is that what you mean?
Zheng Bingwen: Yes, but the shortfall doesn't affect our payments to current pensioners. The money for paying current pensioners comes from current social security taxpayers. When you subtract total expenditures from the total revenue, we actually still have a remaining balance every year. And the remaining balance increases fast. Therefore, on the one hand we have empty accounts, but on the other hand our balance grows rapidly. That's one point. Another point is that since we have empty accounts, our current system is virtually a pay-as-you-go one, meaning the working generation supports the retired generation. The characteristic of such a system is that there will be a lot of invisible debt. It's pretty obvious. For example, our social security law regulates that the minimum contribution period is 15 years. Most female employees are required to retire at the age of 50. However, their average life expectancy after retirement has exceeded 25 years. Can 15 years of contribution support 25 years of live? Is it possible? Definitely not, let alone the pension they receive will be much higher than the tax they paid. It's a simple math problem. Such a system is not sustainable.
There are both pros and cons to filling the empty accounts with cash. If we were to do so, and the State sets aside of 2.2 trillion yuan to fill the shortfall, then we'd have to make sure the value of these accounts increases. If the current investment system stays, the money in these accounts would be kept in banks with a slim interest rate. It will definitely devalue.
Feng Xin: All right, thank you very much.
Finding a sustainable investment method to safeguard people's money is a crucial task for the government, but what about individuals?
Feng Xin: During our street interviews, we found many 20 to 30-year-old people were surprised when being asked about retirement. They said they haven't thought about it yet. Well, let me ask you a question, a technical one. At what age should an ordinary employee start thinking about his or her retirement?
Yang Yansui: Before 35, people usually think about raising children and buying houses; they hardly think about retirement. It's a matter of fact. As far as I see, when their small children grow up, their economic burdens become lighter, and they have paid more than 50% of their mortgage, it's then time to think about the issue, especially once they pass 35 and no later than 40. They should start thinking buying health and pension (insurance).
Feng Xin: What are some of the things people should take into account when planning their retirement?
Yang Yansui: First of all, when do you start your retirement plan? China has the basic pension system; people are required to contribute social security taxes once they are employed. If you think that's not enough, you should plan when to start saving for your retirement. The starting point is crucial. It usually should start around 35 or 40 years old, because you would have plenty of time for saving, say, 20 years. The second question to think about is how much you would like to pay. Since saving for retirement counterbalances current consumption, how do you balance the relationship between the two? Then, what are you going to save for retirement? Since the 8% of personal salary as social security tax is compulsory, the government is going to pay you back in cash, which guarantees basic living. But shall we buy some properties to reduce the risk in cash? Should we save cash, buy pension insurance, real eastate or gold? How to structure your pension assets is the second question. The third question is crucial. Choose a good trustee. Who do you trust to help you manage your pension? There are pension savings, pension trusts and pension insurance. Which tool do you choose and which company do you trust? This is the third question.
Opposing voices have followed the Ministry of Human Resources and Social Security’s June announcement that it will gradually push back China’s retirement age. Scholars say such voices reflect deeper problems, such as the inequality existing in China’s current pension system and the aging of the Chinese population. Perhaps there are more questions for individuals to consider: How much money can we receive after we retire? At what age should we start planning our retirement? After all, does China have enough money to fund its aging population?