The challenges for the Chinese pensions-lessons from Europe? Danping Yan Huazhong University of Science & Technology

Pension reforms in China The context for pension reforms in China - Remarkable economic growth - Prosperity is unequally distributed - China is now aging rapidly Three pillars of China’s urban pension system - Social basic pension scheme - Occupational supplementary pension scheme (annuity) - Individual commercial pension scheme Pension system before Social Security Regulation in 1951 is the formal start of the state pension system. - The state pension system suffered a breakdown during the Cultural Revolution in Government was forced to allow individual enterprises to run their own pension programmes.

Pension reforms in China Reforms in the late 1980s and early 1990s - In 1986 State Council Document 77 encouraged pension pooling across state enterprises - In 1991 State Council Document 33 called for individual contributions by all workers in state-owned and collective enterprises in urban areas. - State Council Document 33 and the Ministry of Labour Document 464 called for the establishment of three tiers in the pension system. Reform of 1995 In 1995 State Council Document 6 required a transition from PAYG pension system to a system combining the social pooling with individual accounts. Reform of 1997 In 1997 State Council Document 26 defined more clearly the direction of pension reform in Pillar 1 : a two-tier pension system combining social pooling and individual accounts was to be instituted by The most recent reform A pilot programme is being run in Liaoning province.

The main problems facing China’s Urban pension system “Empty accounts” Low Coverage Ratio The “implicit” pension debt High contribution rate

Pension reforms in Europe-lessons to follow or avoid Background of European pension reform - Population aging - Pressure on public expenditure Common trend of European pension reform - The objective of the reforms has been to cut the future expenditure on PAYG pensions; - Many countries have raised the retirement age; - Funded pension systems have been changed from a defined benefit to a defined contribution one; - State pension schemes have been scaled down and individual savings accounts under commercial management have been promoted; - Tax incentives have been introduced to speed the development of supplementary funded pensions; - The EU’s pension systems have not succeeded in ending gender inequalities in old age.

Options for reform of the Chinese pension system Separating individual accounts from social pooling Raising the retirement age Increasing pension coverage Promoting occupational supplementary pension scheme