In recent months, many agricultural and commercial banks in mainland China have been launching controversial “retirement loans”. A recent report by “Caijing” stated that this business has been halted by regulatory authorities, but the underlying issues related to welfare, ethics, business, and policy have not been resolved with the halt; instead, it has raised deeper concerns.
The so-called retirement loan refers to a bank loan given to the elderly, who then use the money to make a one-time payment for the urban and rural residents’ retirement insurance, thus using bank funds to alleviate the one-time payment pressure for retirement insurance.
According to “China Newsweek”, incomplete statistics show that over 40 local agricultural and commercial banks in provinces like Hunan, Sichuan, and Zhejiang have successively introduced related products. However, some industry insiders have a cautious attitude towards this product due to disputes over the compliance of loan funds and questionable commercial logic.
The birth of retirement loans stems from the specific design of China’s basic urban and rural resident pension insurance system. The system unified the new rural insurance and urban resident insurance in 2014, consisting of “basic pension + individual account pension”. The basic pension is shared by the central, provincial, municipal, and county finances, but the prerequisite for receiving it is that the insured person has paid the full years.
According to the State Council of the Communist Party of China’s opinion on building a unified basic pension insurance system for urban and rural residents, for insured persons who do not meet the required age to receive benefits when the system is implemented, they are allowed to “make up the payment” until they have paid for a total of 15 years before they can receive the basic pension. For example, the highest payment level for urban and rural resident pension insurance in Hunan Province is 6,000 yuan/year, and making up 15 years would require a one-time payment of 90,000 yuan. For low-income groups, this “large sum” has become a barrier for them to receive the basic pension.
The money in the individual pension account, including the money contributed annually by individuals, the annual financial subsidies, and collective assistance, is repaid within 139 months after retirement. The 139 months are calculated based on the average lifespan.
The loan amount given by banks directly enters the social security account, and after the insured person receives the retirement pension, they prioritize repaying the loan. In the design, if the insured person does not live up to the average lifespan (calculated at 139 months), the remaining balance in the individual account can be returned to the bank; if it exceeds, they continue to receive, and the bank’s risk seems manageable.
On the surface, “retirement loans” seem to benefit all parties involved. It increases credit exposure for agricultural and commercial banks, generates interest income, and with the direct deduction of social security funds, the risks are extremely low. For local governments, it increases the participation rate and payment rate, expands the coverage of retirement insurance, benefits people’s livelihood data, and may receive relevant subsidies from higher-level finances. For elderly insured persons, it solves the difficult problem of making up payment funds, allowing them to receive the national basic pension they couldn’t get before.
However, what seems like a “win-win” situation has raised concerns about its appropriateness. Firstly, the fixed interest rate (3.1% to 3.45%) that banks charge for “retirement loans” is similar to consumer loans, and in some regions even higher than the first-home mortgage rates. Charging such rates for a loan product with almost “no risk” appears to be “inappropriate”.
At a deeper ethical level, the issue lies in the bank’s profit ultimately coming from the national basic pension. Since the monthly amount of the basic pension is limited (around 100 yuan in Hunan), and the investment returns generated from the individual accounts managed nationally are insufficient to cover the interest on commercial bank consumer loans. This means that a considerable portion of the “basic pension” given by the state each month to the elderly is used to pay the bank’s interest. This ethical dilemma of the bank profiting off the elderly’s basic pension is deeply discomforting.
If the “retirement loans” are not stopped, the state’s subsidies will turn into bank profits. However, a blanket ban also brings new awkwardness: elderly people who could have received the basic pension through “retirement loans” now face payment difficulties again and cannot receive benefits.
This highlights the “paradox” of China’s basic pension payment system: when an elderly person has the ability to pay tens of thousands of yuan in one go, the state provides subsidies; but when a more impoverished elderly person cannot pay this amount, they are unable to receive the national basic pension.
Some experts and scholars advocate that the fundamental solution to this paradox should be to directly distribute the basic pension to all eligible individuals, regardless of whether they are insured, unconditionally.