No country for old men?
Due to suggestions of extending the retirement age from 60 to 65 put forward by Dai Xianglong, the former chairman of National Council for Social Security Fund, the problem of pension once again becomes the focus of public attention.
In fact, raising retirement age is only one of Dai’s advices. To cope with the challenges of aging, Dai puts forward three suggestions: the first one is to carry out the top-level design as soon as possible, striving for basically building the public pension by the country, supplementary pension established by enterprises and staff and individual pension saving and constituting the “three backbones” system of old-age security by 2030; the second one is to insist the combination of “social pooling account” and “individual accounts” of pension; the third is that comprehensive measures should be applied to make up the gap of the social pooling accounts formed due to the arrival of aging peak.
Therefore, Dai Xianglong also puts forward some specific suggestions, such as expanding the Social Security Fund through allocating state-owned assets, preserving and enhancing its value and striving for reaching the amount of over three trillion yuan by the end of 2020. And raising retirement age is also one of the suggestions. In his view, raising retirement age is not only for the balance of payment for pensions, but also is for letting those qualified workers better serve the society.
Simply viewing from the technical angle, delay retirement age is not a bad thing. One very simple fact is the change of life expectance in the dozens of years brought by economic development —— according to the data of the World Bank, before 1965, the whole life expectancy of the Chinese was less than 50 years old. In 1968, the life expectancy was just beyond 60 years old, and in 1993 it broke through 70. In 2010, the latest data was 73.3 years old, and in cities of Shanghai etc. the age broke through 80 years old. The increase of life expectancy certainly will lead to the change of retirement age. In fact, the retirement age in OECD countries generally is 65. Therefore, Dai Xianglong also suggests that the retirement age should increase with the increase of average life expectancy: the future average life expectancy in our country is expected to prolong one year every five years, and the retirement age is also prolonged for one year every five years.
Why such a method that is feasible from the technical angle leads to the fierce criticisms of the public? The lack of fairness and efficiency for China’s current pension system may be the most important reason.
The so-called lack of fairness refers to the dual-track pension system. Under such a system, public servants do not contribute to the pension fund but are entitled to far higher pension payouts than retirees from the private sector, while the latter have to pay high social security tax every month.
As for the efficiency, it refers to the heavier burden of enterprises and staffs in China. According to the study of Professor Bai Chongen of Tsinghua University, the social security tax in China is equal to 40% of the salary, and in some regions, it even may reach 50%, such a percentage exceeds those of most countries in the world - according to the actual bearing tax rate that was calculated by the World Bank in 2009, China’s social insurance rates rank first in 181 countries and regions, about two times the average level of the other three “BRIC countries”, three times those of the five Northern European countries, and 2.8 times those of the G7 countries. Why such a high security tax should be paid? One reason may be the late establishment of China’s pension system: since the state-owned enterprise reforms from 1998, the pension system is covering more and more people. Regarding China’s pay-as-you-go (PAYG) pension schemes, the current working populations have to bear more costs for the retired group; another reason may be the poor efficiency for investment. In a rather long period, in order to control the so-called risks, the social security funds can only be kept as bank deposits by government. Once no investment is allowed, we can imagine the benefits.
Just due to the existence of the above factors, the broader publics are sick of the suggestion of delaying retirement age - why should raising retirement age instead of reducing pensions of civil servants? However, under the current pension system, civil servants’ high pensions are provided by fiscal funds and they are not so related with the pension deficit. On the contrary, if the welfare for public servants is carried out in the same way as that of enterprises, the current working population should pay higher security taxes - because there is no fund reserve for the pension of civil servants, and it has to grab some benefits from the PAYG pension accounts. Of course, if there are more fiscal supports, it is not a bad thing - reducing pensions of retired civil servants is at least a politically correct decision.
Just as what has been put forward by many experts including Dai Xianglong, the biggest advantage for China to solve the pension crisis lies in that we have the accumulated state-owned assets in the past and the amount is huge. There is an expert who analyzes that according to the current market value, as long as the one-fourth state-owned shares in Shanghai and Shenzhen stock markets are transferred to social security as the preferred stocks - only sharing out bonus, not reducing holding-shares, not participating in enterprise management, and the problem of the pension gap may be basically solved. Besides, in the future, there will be more state-owned enterprises to be listed, and preferred stocks will be continuously transferred.
In theory, such methods can work. The state-owned assets in nature belong to all the people, and it is the accumulation of labor by workers in the past. In the past, the low salary and high rate of employment were carried out in our country for a long time. The state-owned enterprises handed over all their profits to the country, and their investment depended on government’s decision. Therefore, it makes sense to turn part of state-owned shares into the social pension pool, and these workers can enjoy this part of benefits. To some extent, it also can be regarded as the compensation for the labor value in the past.
Though profits of state-owned enterprises seem very huge, most of them rely on the monopoly to key factor fields. It means that there are not so many enterprises that really make profits in the market competition. Under the premise that the profits mainly rely on monopoly enterprises, whether this bonus plan can be carried out smoothly is still a question. Perhaps some people may believe that the bonus plan may be realized through selling state-run stock shares. Of course, the sporadically selling is no problem, but once the expectation for reducing holding of state-owned shares in the capital market is formed, the value expectation for China capital market will be reconstructed, and it is estimated that there will be an earth-shaking revaluation of changed value. In this sense, if we expect to solve the pension problem through state-owned enterprise, actually the difficulty of the problem is also ignored.
There is another more radical way. Paul Demeny, an American scholar, thinks that now the “fourth backbone” should be added - one kind of mandatory pension fund with the system of PAYG that directly transfers from one’s own children to their retired parents. The design of such a mechanism can not only encourage parents to give birth and breed more children, but also can ensure the quality of children, because parents will strive to improve their children’s abilities.
In other words, we should return the process of the socialized pension system over one hundred years to the former homely pension system, and the problem of supporting old people should be solved starting from constructing a reasonable family scale. Today when the social fertility rate is constantly decreasing, maybe it is a more radical way. If this policy may be carried out, there will be changes for some most basic fiscal and taxation systems, but considering the huge pressure for supporting old people, this way is worthy of trying.
Originally published on China Times | 2013-4-18
