Privatizing China's pension system

[bhchao]

What are your thoughts on privatizing China's pension system? Currently China is considering a three-pillar model as a solution for the huge shortfall in pension funding. China has one of the fastest growing aging populations in the world, which will cause a huge drain on the economy in the near future. The one-child policy has also undermined the traditional family approach of caring for elders, and left more responsibility to the government in providing needed pensions for them. Since there is a large shortfall in pension funds, the government would have to raise payroll taxes significantly to cover the shortfall.

The first pillar of the model represents the public pensions provided by the government. The second pillar constitutes of a voluntary company-based pension program with contributions from employers and employees. This is similar to the US's 401k defined contribution plan where payroll deductions are invested in funds of the employee's choice. The third pillar represents individual savings.

The government implemented a trial run of this three-pillar model in May of last year. However, some local officials took out the employer/employee contributions from the individual accounts, and used them to cover the shortfall in funds in the old "pay-as-you-go" pension system. This would be the equivalent of the US government taking retirement money out of employer trusts and using the money to finance the government's own Social Security program.

One benefit of privatizing China's pension system is that the resulting pensions will provide a larger replacement of pre-retirement income than the old "pay-as-you-go" system, and shift greater responsibility for planning one's retirement future to the worker. But whether or not the government will prevent the money in employer/employee individual accounts from being touched until retirement age remains in question.

http://was4.hewitt.com/hewitt/resource/legislative_updates/asia_pacific/china_pension_reform.htm

[florazheng]

Aha, do u mean to follow Pres. Bush's footstep of pulling ahead with private account?

I don't think that is a good idea because it is risky for most Chinese. Personally, I think on one hand China is still not a complete market-orientated country on the other hand there is no sound legislation of investment.