Challenges remain for unified pension system

China's recently declared intention to unify pension schemes for rural residents and unemployed urbanites has won acclaim as a way to narrow the urban-rural gap, but challenges lie ahead.

The State Council, China's cabinet, announced unification of the separate urban and rural systems on Friday to allow better access to social benefits.

Pension funds from individuals, employers and governments at various levels will be pooled. The central government will provide more money to people in less-developed central and western regions.

The reform is conducive to narrowing the rural/urban income gap and will help urbanization, said Lin Yi, director of the Insurance and Social Security Research Center of Southwestern University of Finance and Economics.

Nearly half of China's 1.3 billion people are rural. China hopes to increase urbanization to boost consumer spending and ensure sustainable economic growth.

A symbol of the urban-rural integration and social equality, the changes to the system are far from a panacea.

"For many reasons, China's social security system is quite different among different people in different regions, which generates inequality," said Feng Jin, professor with the Employment and Social Security Research Center, Fudan University.

There are different pension schemes for enterprise employees, rural residents, unemployed urban dwellers and workers with government and government-sponsored institutions. This has bred a gap in pension payments.

The public is acutely aware that government officials do not need to contribute to the pension pool but enjoy higher annuities after retirement than their peers from the private sector and farming.

Liu Weixiu, 60, retired from the agricultural bureau of southwest China's Chongqing Municipality five years ago. She receives 4,700 yuan (770 U.S. dollars) each month from the government. Her husband Zhang Heping, 63, retired from a state-owned enterprise and he receives about 2,000 yuan every month. Zhang paid about 300 yuan each month for his pension before he retired, but Liu paid nothing.

Friday's plan is simply integration of pension system for rural and unemployed urban residents, which were introduced in 2009 and 2011 respectively.

With sponsorship from the government, everyone over the age of 60 will receive monthly endowments proportionate to local incomes.

The payment for the insurance comprises two different parts: basic insurance, which is fully provided by the government, and the personal pension account, paid by rural and urban residents themselves.

The amounts of the pension varies substantially from region to region. Beijing increased its basic insurance for the fifth time in four years to 430 yuan per month. While in Chongqing, both rural and urban residents get only 80 yuan basic insurance per month.

"What's the value of 80 yuan in current circumstances?" said Ye Zhaochun, 46, a doctor in Yangyan Village, Chongqing. She has yet to participate in the pension scheme.

Although she can choose to pay from 100 yuan to 900 yuan every month into her personal account until she is 60, she thinks it is not a good investment.

She has a monthly income of more than 1,000 yuan and her husband earns more than 2,000 yuan as a migrant worker in the city.

As of the end of 2013, China's urban and rural pension insurance program covered 498 million people and 15 provincial-level administrative regions have already established unified pension systems for unemployed urbanites and rural residents, according to the Ministry of Human Resources and Social Security.

The source of funding to establish a truly unified pension system for rural and urban residents is the biggest headache for the government, said Li Guoxiang, a researcher with the Chinese Academy of Social Sciences.

"Achieving unification among big cities and smaller cities, east and west regions is far more difficult," said Li.

"Local governments definitely will not be active in increasing their spending but if wholly depend on the central government, sustainability is a big problem," he said.

The unification of pension schemes for rural residents and unemployed urbanites is just a step forward, said Wang Xujin, director of the Insurance Department, Beijing Technology and Business University.

"The future trend is the integration of all pension schemes, including the pension scheme for workers with government and government-sponsored institutions," said Wang.