VShina’s pension system is firmly divided by type of employment and place of residence, the result of having been developed gradually over time. These divisions had become problematic not only due to a rapidly aging population but also an economic downturn that exposed deep inequalities and fueled intense popular dissatisfaction.
For that reason, the government formally launched a reform in 2015 aimed at standardizing the pension system. Nevertheless, by recreating labor market inequalities at retirement, some of the system’s structural elements prevented the reform from reducing gaps between different pension categories (“How Can China’s Recent Pension Reform Reduce Pension Inequality?”Huan Wang and Jianyuan Huang, Journal of Aging & Social Policy2021).
The starting point for the 2015 reform was a proposal by the Chinese Communist Party to raise the legal retirement age. But massive public opposition (with more than 70% expressing disapproval, according to several surveys) led the government to change its tune.
A new source of inequality
The system had indeed reached its limits. In a nutshell, there was a basic funded system for all citizens (but differentiated between rural and urban), with a voluntary contribution in exchange for a low pension amount (about €10 per month before 2015).
In addition, there was a compulsory participation scheme for urban employees of private companies, financed by contributions from companies and employees, with a pension level indexed to past earnings. Finally, a pay-as-you-go system guaranteed a fairly generous retirement pension strictly for civil servants, financed by the general government budget, without contributions.
The core of the 2015 reform was the conversion of the civil servants’ pension system into a partially-funded system, which was then merged with the other two systems. But the disparity between civil servants and other workers has effectively remained. While coverage by a pension system is officially mandatory, only about 70% of non-civil servants are covered, primarily because of job instability. The introduction of a supplementary pension for civil servants and employees of companies in certain sectors (finance and transport, among others) has also created a new source of inequality.
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Decoupling pension levels from previous earnings
Finally, pension amounts themselves are broadly uneven. They represent roughly 70% of the base salary for civil servants, a little more than 40% for private sector employees and barely over 10% for the basic pension.
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