A new pension system unveiled by the State Council on Jan 14 will see nearly 40 million government and public institution staff bid farewell to their old noncontributory scheme.
Under the reform, employers and staff will pay 20 percent and 8 percent respectively of employees’ salary toward pensions.
It is necessary to implement some transitional measures, head of the Social Security Institute under Ministry of Human Resources and Social Security Jin Weigang told China National Radio. Jin explained that some people do not have savings, so measures such as reform of the salary system may initially be applied.
Another keyword in the guideline is “annuity”. Government and public institutions should contribute 8 percent and employees 4 percent of total salary to develop an annuity. This will be paid to the retirees monthly after the retirement.
An annuity is a kind of supplementary pension, said Zhong Renyao, deputy head of School of Public Administration of East China Normal University. He explained that developing an annuity, or allowance, can maintain benefits after reforming the pension system.
The current dual pension system has long been criticized, yet unification cannot be accomplished at once.
The unification system is the first step to a final, complete reform, said Dong Keyong, dean of School of Public Administration and Policy, Renmin University of China. He added that China is facing the problem of a rapidly aging population, so a new pension system should be established.
Dong said many people are not familiar with the concept of an annuity and suggested lessons can be learned from developed countries which already have such systems.
He also said there may be worries among employees, which is predictable. He said China has always been careful with policy reform and a steady transition will ensure benefits.