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China 's Long Walk For Retirement Reforms

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Based on country specific circumstances China is facing, conceptual considerations and the experience of other countries with NDC schemes, it is recommended that China adopt a notional defined contribution (NDC) design for its urban old age insurance system.
China’s Long Walk to Retirement Reforms: A Brief History
Beginning in the 1950s, various pension plans were implemented by the Chinese governments, and since then China has undergone important reforms to build a sustainable, nationwide pension system to provide for the retirement needs of its people.
The first stage was the establishment of a centralized pension system soon after the founding of the People’s Republic of China (PRC) in 1949 (so-called iron-bowl…show more content…
Broadly, the document specified the first pillar — pure PAYG for Defined Benefits (DB) and a second pillar of individual accounts. The system did not work in the way it was intended. In particular, with large-scale SOE restructuring, many laid-off workers were given immediate pensions at quite young ages (even at 40). Under these circumstances, the individual accounts broadly became empty as the administration used the revenues to pay the pensions of current retirees. In 2001, as a result of State Council Document No 42, a pilot program was launched in Liaoning province, among other things separating the DB PAYG pillar from the individual accounts. In 2004-06, the Liaoning pilot was extended to ten other provinces.
Despite those reforms undertaken over the last decades, some fundamental problems, such as increasing dependency ratio, legacy costs, fragmentation, limited risk pooling and limited coverage remain. At the same time, new challenges have emerged, like rapid urbanization, urban-rural disparities, income inequality and informalization of the labor force.
China’s demographic change will constrain the size of the working-age population. A recent study by World Bank indicates that China’s working population is expected to peak in 2010 and decrease thereafter. And also, old-age dependency ratios is expected to almost triple until 2050 (see figure 1 in appendix). Moreover, low urban retirement ages contribute
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