China's urban pension funds likely to run out by 2035: CASS report

By Yang Kunyi Source:Global Times Published: 2019/4/11 22:18:41

Urban pension funds likely to run out by 2035: CASS report




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Pension funds in China could run out before workers born in the 1980s retire, according to a report released by the Chinese Academy of Social Sciences (CASS) on Wednesday.

To offset the widening shortfall, other national assets, including foreign exchange reserves, can be shifted to the pension funds, experts said.

According to the CASS report, cumulative balances of pension funds for urban employees are expected to begin declining from a peak of 6.99 trillion ($1.04 trillion) yuan in 2027. By 2035, it's possible that the accumulated balances will be exhausted before people born in the 1980s retire, the report said.

The report also noted that the current balances of pension funds for 2019 are 106.29 billion yuan, but as soon as 2028, the balances may dip to a deficit of 118.13 billion yuan. 

The report warned that given the current demographic situation in urban China, the pressure on pension funds is steadily increasing. 

Zheng Bingwen, director of the Institute of American Studies of CASS, told the Global Times on Thursday that the shortfall in China's pension assets is largely due to the fast-aging population and a shortage of young labor in the market.

"To put it simply, the population group that is paying for the pension programs, namely young labor, is shrinking, while the retired population is rapidly increasing, widening the shortfall between input and output of pension funds," Zheng said.

According to data released by the National Bureau of Statistics in January, in 2018 there were 249 million people over the age of 60, accounting for 17.9 percent of China's population, and 167 million were over 65 years old, making up 11.9 percent of the population. 

In 2019, one pensioner is being supported by approximately two workers. By 2050, only one worker is likely to be supporting each pensioner, said the report.

There are huge discrepancies among provinces in terms of pension fund balances, it noted. 

The pension balances of South China's Guangdong Province are larger than every other province by a huge margin with over 200 billion yuan of balances - almost equivalent to the total pension balances of the next nine provinces combined. The report also estimated that in 2019, up to 16 provinces will not be able to pay for the pensions from their pension balances accounts.

Cao Heping, a professor at Peking University, told the Global Times on Thursday that insufficient pension coverage in China in the past 30 years, especially in rural areas, helped cause today's shortfalls.

"Some provinces have more rural areas. In the 1980s, for example, the pension system didn't fully cover those regions, partly resulting in the insufficient balances now," Cao noted.

To make up for the shortfalls, Zheng believes  the government can transfer money from other assets and sources and optimize the investment system to generate better returns.

"Pension shortfalls are an international issue, including some of the most developed countries. To tackle this problem, the key is to optimize the current investment system that is causing the value of funds to decline. For example, out of the 5 trillion yuan of pension funds in China, only 700 to 800 billion yuan is fully invested," Zheng noted. 

"The government can diversify the source of assets to supplement the state pension fund," Zheng said. "For example, China has a considerable foreign exchange reserve, so some of it can also be transferred to the state pension fund to make up for the shortage."


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