Personal pension accounts nearly dry

• Source: Global Times
• [02:48 July 15 2010]
• Comments

But Sheng said raising the retirement age could create problems as well, as it would add further employment pressure on the already troublesome job market.

However, even if the shortfall in personal accounts is recovered, the pension funds still face the challenge of devaluation. According to a regulation released by the State Council in 1997, the funds surplus, after paying into outstanding pension funds, can be put only into banks or be used to buy government bonds.

The money is forbidden from being used for financial or business investments.

As a result, Zheng noted, the rate of return on the pension funds, including the individual accounts and social pooling, is less than 2 percent - lower than the inflation rate of 2.2 percent in the past nine years. "It indicates a loss of several billion yuan per year," he estimated.

Separately, the national average salary has increased 15 percent annually in the past 10 years, which has affected the real purchasing power of pension funds, Zheng added, calling for the government to look for better way to maintain or increase the value of the funds.

Shen said the 13-year regulation has put the government in a dilemma in maintaining the value of pension funds.

"Even if investing in financial or business investments entails risks, it is still worth trying," he said.

The key is establishing a good investment mechanism, such as an independent investment organization, he added.

China founded the National Social Security Fund (NSSF) in 2000. Its main purpose is to try to offset the gap between the pension system's resources and the future demands of the country's rapidly aging population.

Unlike with pension funds, the NSSF has been able to invest in the security and capital market and enjoy an annual rate of return higher than 10 percent in the past decade.

Zheng noted that the NSSF functions as an insurance mechanism, meaning it won't be utilized for several decades, as the pension funds are still in the green.

According to his estimates, the accumulated surplus will reach 10 trillion yuan by 2020, enough to sustain the pension system until 2070.

"Theoretically speaking, aging will bring about the problem of a deficit in pension funds. But China is a special case, as the funds now cover only a minority of its population, and more newcomers will enjoy the funds," Zheng said.

Liu Linlin, Song Shengxia and Guo Qiang contributed to this story