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The Pain of a Pension Deficit (5)

(Beijing Review)

08:53, August 24, 2012

Aging problem

The diminishing "demographic dividend" in China will also help widen the pension fund shortfall. This dividend refers to an increase in the rate of economic growth due to an increase of people of working age.

"With the process of the aging population, the number of retirees is growing and the time that they draw pensions becomes longer, which will enlarge the country's expenditure in pensions. As the proportion of people of working age declines, the number of people paying to the pension fund system will decline. Hence the pension fund system will face difficulty in distributing pensions," said Zheng.

Zheng said currently China's pension fund system has a cash surplus, because every year there are millions of people joining the pension fund system. In 2011, revenue of China's pension fund system grew by 25.9 percent, higher than the 20.9 percent growth of expenditure. But as the population ages, such advantage will no longer exist.

In the 1960s and 1970s, China experienced a baby boom. Now the baby boomers are in working age. After that, for the family planning policy, the birth rate began to drop. In 20 years when the people of working age now get old, the number of people paying to the pension fund will be smaller than that of those drawing pensions. Actually the impact of diminishing demographic dividend has already been seen now.

Research by the CASS shows that in 1978 each employee needed to provide for 0.603 minors and 0.081 seniors above 65 years old, and in 2006, the respective numbers were 0.255 and 0.127. From 2000 to 2010, China's working age population increased by only 1 percent and it will stop increase by 2015, marking the vanishing point of China's demographic dividend.

According to Zheng's calculation, China's basic endowment insurance system now covers 260 million people, with 190 million paying to the pension fund system and 63 million drawing pensions. This means three payers need to pay for pension of each drawer. As the aging process accelerates, two young workers have to provide for four or even five pensioners.

Besides, life expectancy of the Chinese people is rising. From 1980 to 2010, it rose by one year every five years. If the retirement age remains unchanged, the time of drawing pensions will be extended, intensifying the pressure for the pension fund system.

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