Population aging and pension systems : reform options forChinaAuthor info | Abstract | Publisher info | Download info | Related research | StatisticsAuthor InfoMcCarthy, F. DesmondKangbinZhengAbstractUsing an integrated simulation model, the authors estimate the scope and speed ofpopulation-aging in China, the cost of supporting the old, and the impact of differentreform options and pension arrangements. Among their conclusions: The scope andspeed of population-aging in China make the present pension system financiallyunsustainable, even assuming that GDP grows steadily in the long term. Moving theretirement age back would provide a temporary fix for the current pay-as-you-gopension system but would be politically viable only where there is great demand forlabor. Pension funds could be made more sustainable by increasing GDP growth,raising contribution rates, or gradually reducing benefit rates. But the financial costsand social obstacles of those reform options must be carefully assessed. Fully funded,privately managed pension schemes might be feasible, but require a sound regulatoryframework and institutional infrastructure,including financial markets that provideadequate savings instruments and insurance options. Pension reform is a long-term,multidimensional problem involving economic, social, political, and cultural factors.Governments should not focus only on taxes and transfers to redistribute income toand among the elderly. Real income growth is needed to cope with poverty among theelderly, especially in developing countries. To establish an adequate, efficient, andequitable social security system, China must maintain long-term socioeconomicstability and sustainable growth. China could improve the labor market by removingmanagement rigidities, facilitating human resource development, making labormarkets more competitive, improving the household registration system, improvingincentives, and rewarding hard and innovative work. To reduce unemployment, Chinacan create more job opportunities in nontraditional sectors, especially itsunderdeveloped service industries. To shift jobs to the nonagricultural sector, it candevelop medium-size cities. And to cushion the impact of demographic shocks, Chinashould preserve traditional values and maintain family-community support. Drawingon experience in Europe and Latin America, China should move toward a transparentand decentralized system with 1) a fully funded, portable, defined-benefit pensionplan, designed to meet basic needs, and 2) occupational pension plans or personalsavings accounts to satisfy demand for maintaining or improving living standards.Download Info
To download:If you experience problems downloading a file, check if you have theproper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note thatthese files are not on the IDEAS site. Please be patient as the files may be large.File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/1996/05/01/000009265_3961214130126/Rendered/PDF/multi_page.pdfFile Format: application/pdfFile Function:Download Restriction: nohttp://ideas.repec.org/p/wbk/wbrwps/1607.htmlChina Faces up to Aging Population2005-01-07 09:54:23 Xinhua News AgencyThe birth of a baby boy in Beijing early Thursday marks the day of 1.3 billion people in China, which might havecome four years earlier, and it shows that China has achieved favorable results in its efforts toward a low birth rate.But, population officials and demographers still have much to worry about, such as the country‘s increasing agingpopulation.It is estimated that the proportion of people aged 60 or older in China will rise from 7 percent now to 11.8percent in 2020. And there will be more than 400 million people aged 65 and older and more than 100 millionaged 80 and older by the middle of this century.In 2000, Beijing had 1.7 million people aged 60 or older, who took up 12.54 percent of the city‘s totalpopulation.The aging population poses a serious challenge to the support for the elderly, social security, socialwelfare and services, Chen Yi, vice-chairman of the Beijing Municipal Old-age Association, told a recentforum on population and development in Beijing.Chen said that in 2000 every 100 working persons supported 28 people, including 17 children and 11aged people in Beijing. In comparison with 1990, the number of children supported by every 100 workingpersons dropped by 12 but the number of the aged being supported rose by two.Chen said this reflected increasing pressure on supporting the elderly people in Beijing.What is gratifying is that China has achieved marked progress in supporting and caring for the elderly people inrecent years.The Ministry of Civil Affairs launched in 2001 a "Starlight Project" to build community-based services for elderlypeople. The government has spent 13.5 billion yuan (US$1.63 billion) over the past three years in building 32,490service stations, where elderly people can read books, play cards, do painting, practice calligraphy, have exercisesand attend lessons specifically for aged people.Many Chinese cities have adopted preferential policies, under which elderly citizens can have free visits to parksand free bus rides and enjoy priority to visit doctors, museums and cultural centers.China promulgated the law on safeguarding the rights and interests of senior citizens in 1996.
Apart from government efforts, an increasing number of volunteers have joined in the efforts to support and carefor the elderly people.In Beijing, there are 300,000 volunteers who have established one-to-one relationship with needy elderly peopleand provide regular services ranging from washing clothes, cleansing houses and chatting with the seniors.Some elderly people choose to spend their remaining years at "homes for the elderly" run by the government,where they are well fed and cared for. In east China‘s metropolis of Shanghai, one out of six elderly people want tolive in "old people homes" with the hope of easing the burden on their children.A survey shows that 16.8 percent of the income of urban senior citizens comes from their children.Experts say that it is necessary to carry on the fine tradition of the Chinese nation that young people support andtake care of the elderly members of their families.(Xinhua News Agency January 7, 2005)http://english.china.com/zh_cn/living/leisure/11020506/20050107/12053408.htmlChina FacestheChallenge ofan AgeingPopulationZhangBenboAccording to internationally recognized standards, if people aged 60 and aboveaccount for 10 percent of the population of a country or region, that communityis considered an ageing society.In 2000, one in every 10 Chinese was 60 years of age or older. Those beyond 65made up more than 7 percent of the national population. This phenomenon isexpected to continue for decades.This is a sign that China is already an ageing society.The increasing proportion of old people in the Chinese population has profoundeconomic implications for society and thus calls for corresponding policies andmeasures.Although the economic impacts are still not palpable, we have to move fast to evaluatethe situation and come up with appropriate countermeasures.First, such demographic development will affect the pattern of labor supply.As the proportion of elderly people rises in the overall population, the proportion of
older workers will grow.In 1999, among the active labor force, those aged 45 or more accounted for 24 percent,up from 19 percent in 1990. It is projected that the figure will soar to around 37 percentby 2040.The paramount challenge for an ageing community is how to support and care for thesevulnerable people. This will affect the present pattern of welfare for the elderly.In China, the tradition still prevails whereby old people are cared for in the family home.But this tradition will face stronger challenges in the near future without morecomplementary measures.The sharp decrease in the birth rate since the mid-1970s has resulted in a hugenumber of one-child families. By around 2010, the parents of these single children willbe getting frail or senile, and the children will have to support their parents.As senior citizens live longer, the extremely old will depend on their daughters or sons,who will also become old.Such changes will place considerable pressure on care in the family home.Moreover, the number of retired people is expanding rapidly and expenditure onpensions is growing even more quickly.In 1978, there was one retired person for every 30.3 employees. In 1999, the ratio hadsoared to one retired person for only 3.7 employees. If the current retirement agesremain unchanged at 55 for women and 60 for men, the ratio may climb further to oneretired person for 2.4 employees by 2030.At that time, the social-security fund for the elderly will be unable to make ends meet.An ageing population also has potential implications for consumption and savingspatterns.Based on the life-cycle theory, when the process of ageing reaches a certain degree,the proclivity to save money will decrease and people will be more inclined to consume.As families are one of the major sources of capital accumulation, this tendency willsomewhat erode the supply of funds for manufacturing.In China today, however, people still tend to save for old age. The penchant towardconsumption among the elderly will be restrained to some degree.To offset such negative effects, it is imperative to tackle the issue from differentperspectives.First, the whole of society should foster a social environment that champions respectand care for the old.The elderly are still precious assets of society. They are still a driving force behind
social development.In the long term, any policy in favor of the aged will eventually benefit the youngergeneration and the middle-aged.In addition, the legal system protecting senior citizens interests and rights should beperfected. It should cover such issues as the payment and distribution of pensionfunds, fund management and supervision, enterprises responsibilities for retiredemployees, individual endowment policies, and medical services for the old.Yet the basic prerequisite for dealing with the negative effects of an ageing populationlies in maintaining economic growth.At present, the major cause of the so-called social-security crisis in some Westerncountries is not the expansion of the number of people who rely on a pension. The realculprit is slow economic growth coupled with high unemployment.The cash pinch on social-security funds can be relieved by rapid economic growth.In China, which is still a developing country, maintaining rapid and steady economicgrowth is vital.With abundant human resources and comparatively small social burdens, the firstdecade of the 21st century is a golden time for the country to get ready for the peak ofthe ageing population.In tapping human resources, training opportunities should also be provided for the oldand middle-aged.Under Chinas special circumstances, care in the family home should remain the basicmode of care for the elderly.Such a tradition has been preserved throughout East Asia. Under the huge pressure ofan ageing population, even industrialized countries have realized the flaws of solelyrelying on the social-security system for elderly care and begun to encourage morefamilies to take part.However, social services will gradually take responsibility for many functions still carriedout in the family home.In big cities, the combination of care in the family home and community-based serviceswill help the urban-based old to live with ease and enjoy the love and care of both theirfamily and community.However, the basic security umbrella for the old should still be a social-endowmentinsurance network.Based on the experience of developed countries, the government has a responsibilityto build a social-security system. But this alone is inadequate to support the old.A multipolar security network -- including a government-operated public pension fund,
compulsory individual savings and a complementary voluntary endowment policy -- willbe the best approach for an ageing society.This will help to divert the risks of complete dependence on the social-security fund andmake the fund sustainable.(The author is an assistant researcher with the Macroeconomics Research Instituteunder the State Development Planning Commission.)(China Daily March 28, 2002)