What Are Pension Bonds?

In the process of changing the pension system from pay-as-you-go to a fund accumulation system or a semi-fund accumulation system, since people who have worked and retired have no past accumulation, and they must receive pensions in accordance with the security system, then they Deservedly, there is actually no accumulated part that forms a hidden pension debt.

Hidden pension debt

After the reform in 1997, China s pension insurance has changed from a pay-as-you-go payment system to a cumulative account partial accumulation system, which means that the current employed population must have a personal account when paying endowment insurance premiums for their future. The accumulation of old-age pensions will not be transferred between generations. At the same time, those who had retired before the reform had no (or very few) personal account funds, and the state still had to pay their pensions according to the standard. According to the design of the system reform, this cost was paid from the social pooling fund. The problem is that the current social pooled funds are far from enough to meet the actual needs. In order to solve this problem, the personal account can only be overdrawn (the state stipulated that the pooled funds and personal accounts can be adjusted each other when the system is formulated). In fact, this is to use the newly collected personal account funds to pay retirement benefits to already retired people. The employed population is actually paying pensions for themselves and their predecessors.

In a deeper sense, the number of empty accounts on personal accounts actually reflects China's "hidden pension hidden debt". The hidden debt refers to the current employees and retirees under the "pay as you go" system. The promise of pension benefits, hidden pension debt is inherent to the pay-as-you-go system. Assuming that no institutional change is made, the hidden debt will always exist, which is an infinite amount. Institutional transition actually interrupted the continuation of the PAYG system debt and made it obvious.

According to the latest estimates of the State Council's Office of Economic Restructuring, China's hidden pension debt currently exceeds 7 trillion yuan, which is equivalent to 850 billion US dollars, accounting for more than 80% of the gross domestic product (GDP). According to a BOC International Research Report, one-third of the 31 provinces in China face difficulties in paying their pensions. In recent years, the proportion of China's population over 60 years of age is 10%, and it is estimated that by 2030, the proportion will increase to 22%. According to China's new three-tier pension system, pension funds will exceed 1.8 trillion US dollars by 2030. The first level of the three-tier system is compulsory. Employers pay 13% of employees' actual wages (increased to 16% in the future). The upper limit is 300% of the provincial average wage and the lower limit is 60% . After retirement, employees can enjoy 20% of the provincial average salary. The second level manages pensions for individual accounts. Employer pays 7% of the salary (down to 3% in the future), while employees pay 4%, an annual increase of 1%, up to 8% before 2005, and a total of 11% of the salary. After retirement, employees receive monthly accumulated amounts in their personal pension accounts. The third level is voluntary, giving play to subsidies. The purpose is to encourage employers and employees to pay 5% of their wages in the form of tax deductions. Employees will be paid monthly as an annuity after retirement.