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Pension reform should not mean income cuts, official says

Xu Wei
Updated: Jan 20,2015 8:58 AM     China Daily

The country’s 40 million government and public institution staff will not face income cuts after pension reform, a senior official has said, amid mounting concern of a decrease in disposable income among such staff members.

The central government unveiled a new pension system for government and public institution employees on Jan 14 under which they must contribute to their pensions in conjunction with their employers.

Civil servants and public institution employees will have to pay 8 percent of their deductible salary toward their pensions, triggering concerns that the reform might lower their disposable income.

Hu Xiaoyi, vice-minister of human resources and social security, said the pension reform will be done together with a reform of the base salary of public workers.

“The majority of workers will not suffer a decrease in their monthly disposable income as we are adjusting their base salary as well,” Hu told a news conference on Jan 19.

On the contrary, he said, most of those employees will see their income improve slightly after reform in basic salaries, according to the ministry’s calculations.

“There could be isolated cases of people seeing their monthly disposable income decrease, but that would only happen in high-income groups,” he said.

The reform came after nearly three decades of a dual pension system under which government and public institution employees did not need to contribute to their retirement plans.

Hu said the reform of the pension system can better reflect the contributions made by each individual throughout his or her career.

“Under the old system, the amount of pension a retired worker could collect was determined by their length of service and pay level before retirement.

“Under the new system, the more you pay into your pension, the more you collect after retirement,” he said.

Lyu Xuejing, a professor of social security at Capital University of Economics and Business, said the new social security system could still face a number of challenges in implementation, especially the large number of people and employers involved.

“But the fact that the new pension system has been carried out is progress in itself. We cannot throw away the apple because of the core,” she said.

Hu also said at the conference that the authorities face immense challenges to carry out the reform.

“It involves adjustment of the pension system, the salary system and how the two systems will be adjusted over time. We need to make sure all the interest groups are content with the reform,” he said.