Houses-for-pensions pilot is not enough

Government should look more closely at how to support aging population

The China Insurance Regulatory Commission recently announced that four cities, Beijing, Shanghai, Guangzhou and Wuhan, would be the pilot cities for a houses-for-pensions program for senior citizens beginning July 1.

The aim is to provide citizens with secure and stable incomes after they retire based on the equity in their homes. Houses-for-pensions can provide a financial solution to retirement for elderly people with properties, especially those who have lost their only child.

However, the plan has caused controversy since the idea was introduced last September.

The main reason for this is that the new program seems to pose a challenge to China's traditional retirement lifestyles. In Chinese culture, housing and land are passed on through the family when people die and they are seldom sold off.

For another, in rural areas it is still the norm for adult children to support their aging parents. For citizens in urban areas, the government has had a basic pension system for senior citizens with national pension funds since 1949.

Nowadays, this pension system cannot meet the needs of China's aging society. In particular, people in rural areas need to be included in the national pension system in the near future in order to realize greater fairness in society.

China is now becoming an aging society. According to data from the Ministry of Civil Affairs, the number of seniors, that is people over the age of 60, was more than 200 million in February, accounting for 14.9 percent of the total population.

However, the aging process in China has just started. It is predicted that in 20 years, China will enter the peak period for its aging population. Moreover, statistics from the United Nations show that the population of Chinese old people aged over 65 will reach 487 million in 2050, accounting for 35 percent of the total population. Therefore, the pension burden will become increasingly heavy.

This experiment of reverse mortgage insurance in four large cities can be regarded as a supplement to the current basic old-age insurance system, and it can both ease the imbalance of pension funds and meet some people's personalized needs to improve their retirement living standards.

A similar model was used in France 300 years ago. People would get a pension until their death from properties based on loan contracts with banks. And this program being trialed in China actually originated in the Netherlands.

But such a new pension model can only be an additional option even in Western countries, and its role can never be exaggerated as a means of solving all the problems related to pensions.

The pension situation should be correctly and fully recognized. The government's primary task should be to improve the current basic old-age insurance system and fill in the gaps between the pension fund and the growing needs of the elderly in China. For example, the profits provided by State-owned companies could contribute to the financing gap in the national pension fund, and the large-scale foreign exchange reserve could help as well.

Moreover, the government should make efforts to ensure fairness in pension payments among various groups, especially by establishing a fair and coordinated system that covers both urban and rural areas and strikes a balance between civil servants and company employees.

Finally, we should pay more attention to the potential risks in China's real estate market since in the houses-for-pensions model it is closely related to the well-being of the elderly.

But fundamentally, to meet the needs of China's aging society and ensure greater fairness it is necessary to reform the whole pension system as soon as possible.

The author is a researcher at the China Finance Think Tank. The views do not necessarily reflect those of China Daily.

(China Daily Africa Weekly 07/04/2014 page13)