1. China’s Pension Schemes for Rural and Urban Residents
Mark C. Dorfman 1/
The World Bank
Pensions Core Course
Washington, DC
April 10, 2013
1/ Based on the chapter by Mark C. Dorfman, Dewen Wang, Philip O’Keefe and Jie Cheng

2. Slide 2
April 10, 2013
Outline
1. Context & Scheme Objectives
2. NRPS/URPS Design
3. Evaluation of Initial Results
4. Lessons for China & other Countries
5. Conclusions

3. Slide 3
April 10, 2013
Context & scheme objectives
 1990s-2000s history of rural pension pilot programs
 17th Party Congress - comprehensive & integrated social security
system by 2020
Broad coverage
Basic protection
Multi-layering (urban)
Flexibility (Rural)
Sustainability
 September 2009 est. Rural Pension Pilot Scheme, later National
Rural Pension Scheme (NRPS).
 July 2011 Urban Resident Pension Scheme (URPS).

4. Slide 4
April 10, 2013
National Rural Pension Scheme (NRPS) & Urban Residents Pension Scheme
(URPS) Design
 Two components:
 Funded individual accounts w/matching contributions – Acc. balance/139 at age
60.
 Basic (flat) pension (US$8.85/month) at age 60 (after 15 years).
 Vesting - 15 years contributions, “family binding” and buyback provisions.
 Contributions for dibao recipients by local governments.
 Financing:
 Central subsidies ex-post for basic pension (100% for central and western
regions & 50% for eastern regions)
 Individual contributions - US$15.90-US$79.00 + higher in richer areas.
 Partial match on IA by local governments - at least 30 RMB per year for first 100
RMB contributions.
 Collective subsidies encouraged.
 Rate of return = one-year deposit interest rate (< wage growth and inflation)
 Fund management - most at county level, some at provincial level.
 Supervision - local offices of MHRSS and MOF.

5. Slide 5
April 10, 2013
Evaluation of Initial Results (1)
 Coverage: Ambitious targets met: end-2012 target offer in 100% of rural &
urban areas. Est. 376 million workers covered (end-march 2012) and 107
million receiving benefits (vs. about 55 million covered when rural scheme
est. 2009). Early starters w/highest participation rates.
 Participation incentives reflect:
 Existence of earlier pilot programs (momentum);
 Policy design – 15 year vesting for basic benefit/ex-post subsidy: incentive
for age 45; match only on first 100 RMB of contributions => incentive for
lowest contribution level for match & vesting; Returns on contributions
(including match) - 16% IRR.
 Financing structure – most of subsidy is ex-post & secure
 Pressure on local authorities to offer the scheme including marketing.

6. Slide 6
April 10, 2013
Evaluation of Initial Results (2)
Adequacy of benefits
 Coverage met but limited adequacy. Est. benefit of US$11.20/month:
13 % of net rural per capita income (2011)
30% of $1.25/day (2011)
51% of dibao threshold (2011)
38% of national rural poverty line
 Amount => depends upon supplementary local financing.
Fiscal costs & worker affordability
 Central govt. subsidy < 0.26% of GDP & will remain modest.
 Affordability at county & municipal level less certain.
 Subsidy needed because annuity factor too low.
 RMB 100 = 1.4% of rural per capita income (2011) still unaffordable for lowest
income & least liquid rural workers

7. Slide 7
April 10, 2013
Evaluation of Initial Results (3)
Fund Management & Governance
Initial fund management at county level => investment risks, & possible empty
accounts
Improvement in information systems
Raising pooling level (country – prefecture – province) can only occur gradually
One-year deposit rate results in negative real rate of return.
Portability of Pension Rights
 Across space & time continuing challenge.
 Requires national policies & compatible institutional platforms.
Institutional challenges
Local capacity needs esp. at county level and below.
Collection & payment systems
Information systems & links to related programs

8. Slide 8
April 10, 2013
Lessons for Other Countries
 High level commitment (basic protection for all by 2020). Essential ingredient to
national effort with dramatic leap in coverage.
 Process of subnational piloting. Local experiments & history of rural pension pilots –
design experimentation essential to accommodate diverse conditions &
decentralized environments. Learning by doing has helped.
 Central Government financing of basic benefit (key difference between old and new
rural pension schemes) essential to national credibility.
 Innovative design linking matching contribution to basic benefit. Design has
contributed to coverage. Yet requires comparable conditions and administrative
apparatus to carry it forward in other countries.
 Pension schemes financially stable => focus on fiscal and worker affordability while
promising a very modest benefit.
 Limited adequacy of benefits supporting coverage objective likely insufficient to
shield many elderly against poverty.
 Continued challenges of pooling & managing funds, strengthening institutions &
capacity for service delivery.

9. Slide 9
April 10, 2013
Conclusions
 Pension schemes for rural & uncovered urban populations are a major step
towards objective of universal coverage.
 Policy design achieved coverage in part by modest benefits.
 Policy framework can accommodate wide variation in economic needs &
circumstances + integrate rural and urban residents.
 Sustaining participation will require enhancing portability & eventual
integration.
 Basic benefit may not be sufficient to protect many elderly against poverty.
Increasing matching subsidies would improve adequacy & improve incentives to
contribute more than 15 years.
 Linking vesting, family binding & basic benefits create strong incentives but
present an administrative challenge for a very small benefit.
 Risk pooling is essential for ensuring benefits over the long-term.