From 2009 when trials of the new pension plan for rural residents commenced to the end of 2011, over 320 million rural residents participated in the scheme. The new pension plan will be available to every rural resident by the end of 2012. Over 100 million senior citizens in the countryside will cost the central treasury RMB 66 billion per year.

Besides personal contributions and central government subsidies, local governments are also required to give subsidies to each participant in the plan. In economically developed areas such as Beijing and Shanghai, local government subsidies are tied to the contributions paid by residents. Those registered as rural residents in those areas enjoy relatively high incomes, so they choose to pay higher contributions and will thus receive much higher pensions compared to rural residents like Li Xingxia in Shandong Province. In Shanghai, pension plans are already available to every rural and urban resident, with the former entitled to a pension of RMB 497 per month. Li Xingxia hopes that by the time she turns 60, Shandong will be rich enough to offer similar pensions to rural residents.

Wider Coverage in Urban Areas

After graduating Mrs. Cheng started her own business. For the past two years she has been working for a private real estate company in Beijing. This means that until recently she was excluded from the public urban pension plan. Since she was previously self-employed and now her employer doesn’t pay her endowment insurance, for a long time Cheng was not guaranteed an income after retirement.

This had given Cheng cause to worry as she grew older. However, in 2005 her fears of old-age poverty were mitigated when the State Council decided to improve the pension plan for private employees. The new pension plan for urban employees has been expanded to cover the self-employed and contract workers. Under the plan Cheng can pay pension insurance contributions herself. She chooses the lowest payment of RMB 300 to 400 per month. After 15 years of payments, she will be entitled to a monthly pension of RMB 700 to 800 when she reaches the retirement age. “I don’t expect this money will be sufficient to support me, but I feel relieved that I will at least have that income after I retire,” says Cheng. “Employees of big private enterprises only need to pay eight percent of their salaries into their individual account every month and their employers pay 20 percent. However, people like me who are employed by small companies have to pay the premium by ourselves,” she says. She has also considered earning extra income by renting out the apartment she owns, which would supplement her pension.

The government has also extended the pension insurance to cover unemployed urban residents. According to Zhu Hongjun, who is responsible for public insurance affairs at the Donggaodi Community Service Station in Beijing, now unemployed individuals can choose to pay pension contributions ranging from RMB 960 to RMB 7,420 per year. She elaborates that if she pays RMB 960 per year, or RMB 80 per month, she will receive RMB 280 per month after reaching 55 years of age. Now, in the community where she serves most unemployed residents that participate in this pension plan are women who have followed their husbands to Beijing, and their numbers are small. In Donggaodi so far only two residents have started to receive old-age pension for the unemployed.

The pension insurance plan for unemployed urban residents has been implemented on a trial basis since July of 2011. According to Zheng Bingwen, director of the Research Center for World Social Security at the Chinese Academy of Social Sciences, the new pension plan for rural residents and the pension plan for urban residents both feature low payments and have not been a heavy burden on the government. Since the campaign to provide full coverage of pensions to all rural and urban residents was launched, more than 380 million urban and rural residents have come under the plan.

In Pursuit of Fairness

In recent months, the possibility of extending the retirement age because of the pension accounts deficit has been much debated. Such discussion was provoked by a proposal made by He Ping, director of the Social Security Research Institute under the Ministry of Human Resources and Social Security (MHRSS). He suggested extending the retirement age from 2016, by one year every two years. The retirement age should be raised to 65 years old for both men and women by 2045, he said. Currently the retirement age is 60 for men and 55 or 50 for female workers.

The delay of the retirement age will directly affect those urban employees who are paying their pension contributions. According to statistics of the MHRSS, 284 million urban employees participated in the pension plan by the end of 2011. The proposal drew strong oppositions from the public. A survey launched by major Chinese websites show that over 95 percent of netizens are against the delay of the retirement age.

Currently private enterprises are required to pay contributions towards their employees’ pensions and medical care insurance. However, under the pressure of the high cost of recruitment, some small enterprises refuse to pay. Mrs. Cheng says that the company she serves is an example. “I can understand their difficulties. The company hasn’t started to make a profit and the expenditure would be 40 percent higher if the company paid their contribution for all of its employees to various insurers,” says Cheng.

The situation is same when it comes to migrant workers, whose number is enormous. The government stipulates that migrant workers and their employers should both pay part of the pension. However, both parties lack the motivation to pay the money. According to statistics of the MHRSS, among the 284 million urban residents who have joined the urban employee pension plan, only 41.4 million of them are migrant workers, less than one sixth of migrant workers in urban areas. Jin Weigang, deputy director of the Social Security Research Institute under the MHRSS, said that it is difficult to raise the pension plan participation rate of migrant workers under the current system due to inconsistent policies for different pension plans. They prefer cash to depositing the money into an account.

To fulfill the government’s goal of universal coverage of the pension plan the current system must be improved to encourage people to join voluntarily.

One major feature of the current pension system is that workers of government institutions and enterprise employees have been treated differently under the dual system that has been implemented since the 1990s. Government employees receive a much higher pension than employees of enterprises, an inequality that has been an object of public condemnation.