China set to announce reforms of creaking pension system: sources

Thu Oct 17, 2013 6:44pm EDT
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By Natalie Thomas

BEIJING (Reuters) - China is close to announcing long-awaited reforms to its pension system, whose assets are estimated to have already fallen $3 trillion behind projected future payouts, as it seeks to create a sustainable safety net for a rapidly ageing population.

The reforms, which may be announced as early as this month, could include merging separate state and private sector employee pension schemes, increasing coverage and broadening the range of assets pension funds are invested in to boost returns and improve efficiency, said sources with knowledge of the discussions.

As China seeks to transform its economy from the export and investment-led model that drove two decades of growth towards a future based on consumer demand, it faces the huge demographic challenge of an already shrinking working-age population.

By 2035, according a report by Qinghua University released in August, every two to three Chinese workers will have to support one dependent.

"There's no way that if the system doesn't change the problems won't get worse," said Dong Keyong, Dean of the School of Public Administration at Renmin University. "The system won't be able to cope, it will change."

The problem of ballooning old-age costs is familiar to many developed countries facing the retirement of the "baby boomer" generation. China is confronting it earlier than most emerging economies due to the one-child policy introduced in 1979.

Experts have been warning for almost a decade that China may get old before it gets rich. The Qinghua report said that China was already 15 years behind in terms of restructuring its pensions.

An unchanged system could face a 68.2 trillion yuan ($11.2 trillion) pension shortfall by 2033, according to a report led by Ma Jun, Deutsche Bank's chief economist for greater China, released in June 2012. The report estimated that by this year projected liabilities would exceed assets by 18.3 trillion yuan.   Continued...

An elderly lady sits in a wheelchair in Beijing, October 16, 2013. REUTERS/Petar Kujundzic