The document summarizes China's National Rural Pension Scheme (NRPS) and Urban Residents Pension Scheme (URPS). It discusses the schemes' objectives of providing basic pension coverage, the design of individual accounts with matching contributions and basic flat pensions, and evaluations of the schemes' success in rapidly expanding coverage but providing only modest benefits. Key ongoing challenges include improving adequacy of benefits, strengthening fund management, and enhancing portability of benefits.

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.