Searing reforms proposed by a former high-ranking board member of China's national pension fund manager have had a polarising effect on pension experts, with some welcoming the proposals and others deriding them.
Under the plan put forward by Wang Zhongmin, ex-deputy chairman of the National Council of Social Security (NCSSF), investment assets would be shifted onto individuals for management rather than left with provincial authorities.
The idea forms part of a set of suggested reforms that would arguably see China’s public pension system make better use of an historic account-based structure and overhaul management of the National Social Security Fund (NSSF).
But with China faced with a growing challenge as the country's population ages and fewer working-age payments are made, Wang's idea is to put individuals’ compulsory contributions into “personal accounts” instead of social security funds, 21st Century Business Herald reported on Sunday.
“If personal accounts are implemented, individuals have to use this part of money to make investments. Returns made every year will be saved in it and compounded over the years … This will not raise any expense for individuals but increase their wealth,” he said at weekend public forum in Qingdao.
It would potentially allow individuals to invest for their retirement according to their life stages and risk appetites, while also reducing the fiscal pressure on the government, Li said.
Wang didn't elaborate on whether public pension payouts would change after such reforms.
It's also unclear how much influence Wang retains within government circles. It's fair to surmise, though, that Lu Quan probably hopes it's limited because, as secretary general of the China Association of Social Security, he thinks Wang's proposals wholly inappropriate.
“I think his idea is totally wrong ... a core concept of [public] pension is pay-as-you-go. Personal accounts in the second and third pillars are acceptable but not in the first pillar, he told AsianInvestor.
China's retirement system is divided into three pillars, in accordance with World Bank guidelines. The first pillar dominates and consists of social security funded and run by the government. A less developed second pillar is mainly made up of corporate annuity schemes, while a nascent third pillar comprises personal savings and voluntary individual contributions.