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Policy Analysis on National Rural Pension Scheme

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Kayla Ling

on 7 May 2014

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Transcript of Policy Analysis on National Rural Pension Scheme

Policy Analysis on National Rural Pension Scheme
by Kayla C. Ling
Aging and Poverty in China
Poverty and Vulnerability among China's rural elderly
Advanced old age is associated with an increased likelihood of poverty.
The rural elderly has been consistently poorer and more vulnerable compared to both working-age households and the urban elderly.
Cause of Old Age Poverty in Rural China
Pension design has been consistently favored the urban elderly
Not until 2006, policy on pensions has not been focused on the rural elderly.
The National Rural Pension Scheme
Trends of Population Aging in Rural and Urban China, 2008–2030
Population aging -- declining birth rate due to one child policy and increasing life expectancy
population is aging unevenly between rural and urban areas, with rural areas aging even more rapidly.

Lack of pension support!!
Design Problems
Family Binding Provisions
Low benefit levels
Fiscal cost and affordability
Fund management and governance
Portability of pension rights
individual annual contribution RMB 100 for 15 years
start receiving benefits at the age of 60
basic pension benefit of RMB 55, RMB30 matching subsidy provided by county government per year
Aging and Poverty in China
Poverty and Vulnerability among China's rural elderly
Source of support among rural eldelry
Cause of old age poverty
The National Rural Pension Scheme (NRSP)
Design Problems of NRSP
Family binding provisions
Low benefit levels
Fiscal cost and affordability
Fund management and governance
Portability of Pension rights

What you can receive per year: government contribution + individual contribution
Government contribution = RMB 55*12months + RMB 30 = RMB690
Individual Contribution = [(RMB 100 * 15 yrs )/ 139]*12months = RMB 130
The ratio 139 is determined to reflect the combined assumptions of a notional life expectancy at age 60 and an assumed drawdown interest rate of 4 percent. Again, the ratio varies from regions to regions.
TOTAL about RMB 820

National rural poverty line RMB2300 (USD 369.34)
Average income per capita RMB 3224 (USD 517.71)
RMB 820
(USD 131.46)
36 percent of the national rural poverty line
26 percent of rural per capita income
- the NRSP cannot address the poverty issue faced by the rural elderly
- Policy Suggestion:
to evolve the current basic benefit (e.g., RMB 55) into “a social pension scheme: in rural areas for which eligibility is not linked to contributions to an individuals account
the management of the funds should be progressively transferred from local country governments to provincial government, and eventually to the central government
policy support on portability of pension rights

The cost to the central government of the portion of the basic benefit for which it is responsible is low and likely to remain so despite a growing aging population in China (Dorfman et al., 2012). Providing RMB 55 (USD 9.07) a month to everyone in China over age 60 would cost the central government
percent of GDP. These costs are projected to increase over time, as the aging population increases in China. However, if the benefit level were to grow at the same rate as GDP growth and the central government were to finance 100 percent of the basic benefit, an estimate of the cost would still be less than
percent of GDP in 2050 (Dorfman et al., 2012).
How the NRSP impacts the poverty issue faced by the rural elderly in China?
Thank you!
Barr. N. and Diamond, P. (2010). Pension Reform in China: Issues, options and recommendations. London School of Economics and Massachusetts Institute of Technology

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China News (2009). 中国将建新型农村养老保险制度 养儿防老失意义(China will establish new rural pension scheme), 4 March 2009, available at: http://www.chinanews.com/jk/kong/news/2009/03-04/1586983.shtml
Dorfman, M.C., Wang, D., O’Keefe, P. and Cheng, J.(2012). China’s pension schemes for rural and urban Residents, Chapter 11 in Matching contributions for pensions: A review of international experience, the World Bank, Washington DC
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Help Age International (2013). Pension coverage in China and the expansion of the new rural social pension. Help Age International. London, UK.
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