In October of this year, the transitional period for the “convergence of pension funds” will come to an end. Civil servants in China will implement the same pension insurance system as enterprise employees. Will this have an impact on the pensions of civil servants? Recent analyses suggest that the impact may not be significant, as “those within the system still have advantages compared to those outside the system.” People also say, “It feels like there has been a change, yet it also feels like nothing has changed.”
Recently, social media platforms in Mainland China have been focusing on the convergence of pension funds. The original pension system in Mainland China was a “dual-track system”, where those within the system (civil servants in government agencies) participate in government agency pension insurance without having to pay for it themselves. Their retirement benefits are generally linked to their salaries at the time of retirement. Those outside the system (enterprise employees) combine social pooling with individual accounts for pension insurance, where both the enterprise and the individual contribute to the insurance fund. In 2014, the Chinese State Council introduced the “convergence of pension funds” reform with a 10-year transitional period. As the deadline approaches, the “convergence” means that those within the system and enterprise employees alike will adopt a system that combines social pooling with individual accounts for pension insurance.
Will the pensions of civil servants be affected?
An analysis published in Beijing’s “Sanlian Life Weekly” at the end of last month pointed out that the convergence does not mean that pensions within and outside the system will be exactly the same. Pensions within the system still hold advantages.
There are three main reasons for this. Firstly, many enterprises avoid paying their employees’ pension insurance based on actual salaries, which results in a significant reduction in their post-retirement income. In contrast, those within the system contribute based on their actual salaries and do not have to make individual contributions. The differing payment standards determine the gap in the final pension benefits.
Secondly, looking at the pension replacement rate indicator, the pension replacement rate for enterprise employees is only slightly over 40%, while for those within the system, it is as high as 80%-90%. For example, if we consider a salary of 10,000 RMB, an enterprise employee might receive just over 4,000 RMB in pension benefits after retirement, while someone within the system could receive 8,000-9,000 RMB.
Thirdly, in terms of occupational pension benefits, contributions within the system are mandatory, while enterprises do not have the same obligation. The majority of ordinary private enterprise employees are unable to enjoy this benefit.
Internet users commented, “Only when individuals in business do not have to contribute personally can there be a possibility of leveling the playing field… Otherwise, it will never happen, just like the reimbursement ratio for medical insurance will never be matched.” “Civil servants can get more and better medication at hospitals. I can only buy one bottle per visit, while I saw a woman buying four bottles. When I questioned the doctor, they said she was a civil servant, allowed to receive more medication than you. After working for ten years, there are still thirty years until retirement. Who knows what will happen in thirty years, it’s despairing. Saving for retirement seems more practical.”
Some netizens questioned, “It feels like there has been a change, yet it also feels like nothing has changed.” “It’s better to pay attention to the flow of wealth going overseas by the wealthy, instead of staring at the meager retirement benefits of the elderly… It’s been enough for many years. Clearly, there is a lack of funds, creating a discourse preparing to cut salaries for those within the system, while you mistakenly believe that it is about raising high salaries hand in hand with you. Living on pension benefits, whether within the system or as a worker, fundamentally puts you in the lower class.”
Retirement benefits for senior Chinese Communist Party officials follow special standards. In addition to cash income, these officials enjoy various benefits that are not reflected in their salary statements.
In 2015, “Military Observation” revealed the detailed standards of benefits for retired vice-provincial and deputy ministerial-level cadres. The benefits include: 1. Equipped with a full-time driver cum guard and support staff, with additional part-time medical personnel for those in poor health (above 80 years old). 2. Annually, they are entitled to four domestic tours for recuperation, each lasting two weeks, limited to five family members including children. For travel, they can take first-class or business class flights for a maximum of two individuals, or soft sleeper train berths for two; those in poor health or with restricted mobility are entitled to a semi-private sleeper compartment. For local transportation, they receive two sedans or one small tour van along with one sedan. Accommodation includes staying in a four- or five-star hotel (hostel) with a rented deluxe suite. The daily meals during the stay amount to 300 RMB (42 USD) for the retiree and family members, and 200 RMB (28 USD) for accompanying staff, with expenses reimbursed based on actual consumption.
Apart from these benefits, each senior provincial and ministerial-level official receives an average of over 1.12 million RMB (around 160,000 USD) per year in subsidies and allowances (excluding pension benefits and grade-related expenditures). For deputy provincial and ministerial-level officials, this amount is nearly 940,000 RMB (around 130,000 USD) per year.
Editor: Xiao Lusheng