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Feb 27, 2014

China details pension overhaul aimed at shrinking urban-rural divide

Does not tackle bigger challenges like unequal payouts
    
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BEIJING (Reuters) — China has released details of a pension scheme reform that seeks to decrease urban-rural economic divisions before 2020, state media reported on Wednesday, part of an overhaul that encourages labour mobility but does not address deeper problems in the system.

A new pension fund will be made up of annually paid pension insurance, government subsidies and other contributions, and will pay pensions to residents from the age of 60, state news agency Xinhua reported China's State Council as saying on Wednesday.

Monthly pensions will only begin after 15 years of payments, ranging from 100 yuan a year to 2,000 yuan ($18 to $363 Cdn), Xinhua reported, adding that the new pension scheme will not cover government staffers or registered urban workers, whose retirement pensions have better benefits, said Xinhua.

But the reform does not tackle bigger challenges plaguing China's pension system, such as unequal payouts that have bred resentment, and a funding shortage that some economists say will be as big as 68 trillion yuan ($12 trillion Cdn) by 2033.

As China seeks to transform its economy from the export and investment-led model that drove two decades of growth towards a future based on consumer demand, it faces the huge demographic challenge of an already shrinking working-age population.

The new unified pension system is particularly aimed at China's migrant workers, who will be able to access basic pensions even if they become urban residents, Xinhua reported.

China's highly fragmented pension system was previously loosely divided into four categories: for civil servants and state officials, for workers in the private sector, for non-employed urban residents and for rural residents.

The number of people covered in the last two categories, which offer only basic payouts, has risen quickly in recent years as China tries to strengthen its social safety net.

After 30 years of scorching double-digit economic growth that devastated the environment, China wants to overhaul its growth strategy by replacing polluting investment with consumption.

Economists say key to that goal is improving social protection so that consumers are encouraged to spend more without worrying about unaffordable retirement and healthcare costs.

    
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