Does a universal non-contributory social pension make sense for rural China?

China’s pension reform during the past three decades has allowed a majority of China’s population to be covered by a pension scheme. Of particular note has been the New Rural Pension Scheme (NRPS), a voluntary programme introduced starting in 2009. One goal of our analysis is to assess that pension scheme, using a variety of sources of information including data drawn from recent (2013 and 2015) nationwide China Health and Retirement Longitudinal Surveys (CHARLS). Our analysis involves an exploration of differences between the generosity and structure of the NRPS and other pension schemes currently in place. We also explore the feasibility of reforming the current “quasi-social pension” component of the NRPS by substituting a universal non-contributory social pension pillar. In connection with our assessment of the NRPS, we note the unusually low benefit levels for rural China.     

Extending social security coverage to the rural sector in China

In late 2009 China launched an innovative, voluntary programme that by 2011 had extended pension coverage to 326.4 million people in the rural sector, including contributors and beneficiaries. It requires one contribution per year and provides a flat‐rate benefit and a contributions‐related benefit through a contributory individual account, with a government guarantee that the benefit will continue for life. The programme encourages participation of persons who do not pay income taxes, and thus have no tax incentive to participate, by providing substantial government subsidies. As a further incentive, old‐age benefits are provided to older parents when all their adult children participate in the contributory programme.     

A call for more elaborate and transparent pension data to inform policy‐making: A critical examination of World Bank data for Eastern Europe

This article offers a critical analysis of the methods by means of which data relating to the performance of second pillar pension schemes are collated, compared and reported. This is done with regard to the performance of mandatory private second pillar pension funds in Eastern Europe. By critically examining data published in a number of World Bank studies, and through the identification of data problems and irregularities, the article argues that a much more elaborate and transparent approach to the collation, comparative analysis and reporting of data is needed. Required is the establishment of a consensus regarding what should represent a robust basis for making credible policy recommendations, not least with regard to pension re‐reforms in the countries of Eastern Europe and elsewhere. In the absence of such a consensus, unresolved data problems and irregularities may potentially continue to influence the formulation of incomplete national policy conclusions regarding the performance of second pillar pension funds and, in turn, the ability of policy‐makers to evaluate appropriately the need for, and assess the feasibility of implementing in a sustainable manner, pension re‐reform.     

The sustainability of China’s Urban Employees’ Pension Programme: A case of getting old before getting rich?

This article examines the sustainability of China’s Urban Employees’ Pension Programme – the main component in China’s overall old‐age support system. It looks at the sustainability of the programme generally and, in particular, at case studies of two areas (Tianjin municipality and Guangxi province) to highlight both the extent of regional variations and the common challenges facing Chinese policy‐makers. It discusses a number of key issues that should assist policy‐makers to address the challenge of population ageing. It concludes that the challenge facing China is no more severe than that already faced by other countries in Europe and Asia. Moreover, the ageing of the population is not uniform across the regions of China. Consequently, those areas where the demographic shift is more advanced will provide some opportunity for policy experimentation. Given the experience to date of slow progress on various aspects of pension policy reform, the article suggests that it seems unlikely that paradigmatic change will be significant. Nonetheless, the study suggests a range of parametric policy measures that China should consider. The challenge facing China’s policy‐makers is to ensure that China gets old and rich at the same time.     

Work histories and workers’ failure to satisfy pension contribution requirements: A comparison of Mexico and Uruguay

Comparing Mexico and Uruguay, this article examines the work history of workers and the challenges they face to satisfy the minimum contribution period for eligibility to receive a contributory old-age pension. Administrative data on work histories is used to formulate a survival model aimed at estimating hazard rates of entering and transitioning out of a given contribution status. This model is then used to perform a Monte Carlo simulation to forecast contribution histories. Results suggest that the hazard rate is negatively associated with the length of a worker’s spell in his or her current status and warn that, both in Mexico and Uruguay, a significant group of workers will find it difficult to gain entitlement to a contributory pension in old age. The manner in which each of these national systems has addressed the challenges associated with low contribution densities may explain the two countries’ very different coverage results.     

China’s development of a multi‐tier pension system

China has made a number of major changes to its pension system in the period 2014–2020, and is in the process of establishing a multi‐tier old‐age pension system, consisting of programmes provided by the government, voluntary programmes provided by enterprises, and voluntary programmes established by individuals. Policy objectives are to reduce the fragmentation in its pension system; deal with population ageing; and diversify risks by involving the government, enterprises as well as individuals. This article shows that while China has a complex system for urban workers, the coverage provided by its multi‐tier system is uneven, with the second and third tiers being in the early stages of development.     

Longevity insurance annuities: China adopts a benefit innovation from the past

Longevity insurance annuities are deferred annuities that begin payment at advanced older ages, such as at age 80. Such annuities would benefit some older retirees who have drawn down their savings, but the private sector has problems in providing them. Originally, social insurance old‐age benefits programmes in some countries were structured as longevity insurance programmes, with 50 per cent or less of those entering the workforce surviving to receive the benefits. Over time, however, as life expectancy has improved, the benefits these programmes provide have slowly transformed into benefits that most people entering the workforce ultimately receive. This article argues that the reintroduction of longevity insurance benefits as part of social insurance old‐age benefit programmes could be an important policy innovation, in particular because this benefit is generally not provided by the private sector. China has introduced longevity insurance benefits as part of its social insurance system, offering a model for other countries, particularly those providing modest social insurance old‐age benefits.     

The effects on intra‐generational inequality of introducing a funded pension scheme: A microsimulation analysis for Estonia

This article uses a single male cohort microsimulation model to analyse the intra‐generational and distributional effects of a shift in Estonia from a defined benefit pay‐as‐you‐go (PAYG) pension system to a multi‐pillared system with a PAYG scheme with contribution‐based insurance components and a funded pension scheme. We contribute to the literature on microsimulation by showing how introducing contribution‐based insurance components and compulsory defined contribution (DC) schemes can increase pension inequality. Our results show that in the case of a high level of inequality in labour earnings and high long‐term unemployment rates, such as in Estonia, the introduction of a very strong link between contributions and future benefits leads to considerably higher inequality in pension incomes as measured by the Gini coefficient. Simulation results for Estonia suggest that inequality in old‐age pension incomes more than doubles when the reforms mature. In contrast, the inequality in replacement rates decreases.     

An actuarial balance sheet of the Swiss old‐age pension scheme

Following the recent update of the international System of National Accounts (2008 SNA), internationally comparable estimates of accrued‐to‐date pension liabilities (ADL) of unfunded social security pension schemes will soon be available in the supplementary table to the National Accounts. Against this background, this article analyzes the medium‐term sustainability of the Swiss old‐age pension scheme (Alters‐ und Hinterlassenenversicherung – AHV). This is achieved by estimating a “Swedish” actuarial balance sheet, which compares pension liabilities with the explicit and implicit assets of the pension scheme. Our results show that the current financing of the AHV is unsustainable, with about 30 per cent of the liabilities not backed by corresponding assets. In order to close this financing gap either the contribution rate should rise from 8.4 per cent to 12 per cent or all pension liabilities should be cut by about 38 per cent.     

Lessons from China on different approaches to pension coverage extension

Achieving universal pension coverage is both an aspiration and a challenge for many developing economies. Traditional contributory schemes are less effective in extending pension coverage to workers who are not in the formal sectors of the economy. As an alternative, non‐contributory schemes have gained popularity in recent years. China’s pension reforms mirror this global trend. The introduction of a contribution‐based pension scheme for urban employees (Employees’ Pension) was followed by a scheme for rural and urban residents (Residents’ Pension), which is partly government financed and partly contributory, with multiple options for premium payment. This study uses nationally representative survey data collected in 2016 to compare the inclusiveness of the two schemes. It finds that access to the Residents’ Pension scheme is more equal than the Employees’ Pension. Lower status workers in terms of education, employment, income and hukou‐migration are more likely to participate in the Residents’ Pension as opposed to the Employees’ Pension, compared with higher status workers. The Chinese experience suggests that a workable solution for pension extension in low‐ and middle‐income countries is to have a scheme that is flexible, affordable and responsive to the diverse needs of the population.