Reform of pension system worries public sector workers

Following new reforms, from October 2015, China's 40 million public sector employees will have to pay into the State pension system, as the government seeks to create a more equal and solvent system. Pension reform is one of the most challenging reforms that China has undertaken. The reform means that the national pension scheme will become a system in which employers, individuals and the government take joint responsibility for pensions. But many are worried about having their pensions and salaries cut and about the overall cost of these reforms.

Doctors, teachers and other public sector workers in China are worried. Some have even gone on strike. But they aren't worried about their working conditions. They are worried about what will happen to them when they retire.

In some central and western Chinese regions, it has been reported that many civil servants have been applying for early retirement.

These people are seeking to leave the world of work early due to last week's State Council announcement of pension reform. This has led to many civil servants worrying that they might not receive the pension they have expected.

Zhang Chewei, vice dean of the Institute of Population and Labor Economics, Chinese Academy of Social Sciences (CASS), told the China National Radio that these worries about reduced pension payments are understandable, but that it is not easy to be granted early retirement.

The State Council announced its plans for a new pension scheme for civil servants and those employed by public institutions on January 14. The new system is to come into force from October 2015.

Under the old system, public sector workers did not have to pay into a pension fund and their pension was paid for by the State. Their pension payments were nearly 90 percent of their pre-retirement monthly salary.

But under the new system, the size of pension payments will mainly be decided by how much retirees have paid into their pension fund, and for how long. This would bring public sector workers more in line with their private sector counterparts who must pay 8 percent of their monthly salary into a pension fund.

Private employers must also pay 20 percent of their workers' salaries into a pension fund. Usually, the pensions of private sector employees are equal to 40 to 60 percent of their final salary.

This gap has led to discontent among private sector workers, who have called for the government to create a fairer system.

These reforms will aim to create a more equal and solvent system, as pensions in China are under increasing pressure from an aging society.

Deficit reduction

In making this announcement, China is taking on one of the most challenging areas of reform - the long-running dual pension system.

China had nearly 7.2 million civil servants and more than 31.5 million public sector workers employed by institutions such as schools and hospitals at the end of 2013, according to official figures.

Of these workers, China's 2 million medical doctors and 17 million teachers are the people who will mostly be affected by this reform as they make up the majority of public sector workers.

Zhu Lijia, professor at the Chinese Academy of Governance, told the Global Times that the new scheme will likely "start with setting a direction and moving things along gradually to weed out discrepancies in the pension system."

The goal is to develop a unified pension scheme that covers both public sector and private sector employees. Scholars have said that the plan represents "a major step" toward a more equitable and balanced system.

According to a report on China's pension fund development released by the CASS in late December, a total of 19 provincial-level regions had pension deficits in 2013, with a total shortfall of 170.2 billion yuan ($27.4 billion).

China's rapidly aging population has led to a decrease in the proportion of the country that is paying into pension funds but an increase in the number of people receiving pensions. It is also considered one of the major reasons to the introduction of the pension reform.

Official figures show that the number of people above 60 years old has exceeded 200 million, accounting for 14.9 percent of the total population.

Fears and protests

Zhu Lijia said that people's worries about their retirement benefits being cut from today's level has sparked the rush for the door by some teachers and doctors.

In some places where these reforms have been experimented, these fears have led to widespread uneasiness.