BEIJING—China will abolish a dual-track pension system that favors government employees and discriminates against others to create a fairer retirement-savings system.
Under existing rules, about 37 million employees with government agencies, communist organs and public institutions don’t have to contribute anything to their pension savings, with the government paying pensions of about 90 percent of their pre- retirement salaries. Those employed by businesses from banks to bakeries must contribute 8 percent of their salary to pension accounts, on top of 20 percent of their wages that’s paid by employers to a pooled pension fund. On average, private retirees end up with 40 percent of their working pay.
As the system has increasingly become a source of resentment among the public, Vice Premier Ma Kai said on December 23 that the State Council and the ruling Politburo have agreed to implement a “unified” pension system, and government employees will have to contribute to their own pension accounts, the official Xinhua News Agency reported. The report didn’t provide a timetable for the reforms.
“The old fragmented pension system is worsening China’s wealth distribution,” said Li Shi, executive dean of Beijing Normal University’s China Institute of Income Distribution. “It’s unfair for a government retiree to take pensions two or three times bigger than a company retiree.”
As many as 338 million urban employees were covered in China’s urban pension system as of the end of November, and the average pension was 2,070 yuan per month ($332), Xinhua reported. For farmers and the urban unemployed, China has another payment of just 82 yuan per month to retirees as of the end of 2013, the agency said.
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