China will integrate its basic old-age insurance systems for rural and urban residents to give people equal access to the pension scheme, according to an executive meeting of the State Council on Feb. 7, 2014. Pension funds from individuals, employers and governments at various levels will be pooled. The central government will provide more money to people in less-developed central and western regions of the country.

One thing must be made clear at this point -- the announcement only involves merging pension systems for urban and rural dwellers in China. A unified national pension system is still on the way.

China's social security system is quite different for different people in different regions. There are four different pension schemes in operation for enterprise employees, rural residents, unemployed urban dwellers and workers of government and government-sponsored institutions.

Under the current schemes, workers of government and government-sponsored institutions do not need to contribute to the pension pool. Their pensions are fully provided by the government. The insurance system for enterprise employees implemented since the late 1990s requires that a company pay 20 percent of the pension of its employees and each employee pay 8 percent. The employees get their endowments after paying in money for 15 years. The pension systems for rural and unemployed urban residents were introduced in 2009 and 2011 respectively. Under the two systems, everyone over the age of 60 receives a monthly endowment proportionate to the local income level.

The public has criticized the fact that workers of government and government-sponsored institutions do not need to pay into the country's pension pool but still enjoy higher annuities after retirement than their peers working in enterprises and farming.

With China's increasing urbanization, the integration of rural and urban pension systems will not only help reduce administrative costs but also encourage the mobility of the population. A good institutional design should be conducive to possible change. This is just what the unified pension system offers.

It is easier to merge the rural and urban pension systems as the two are strikingly similar. Under both systems there are personal accounts paid by rural and urban residents themselves.

So far, a unified insurance system for unemployed urban and rural residents has been established in 15 provincial-level administrative regions in China. It is expected that it will be applied on a national level in the near future.

However, in addition to covering more people on low incomes under the pension system, we must also make sure the system is practical and effective. At present, the rural and urban pension systems are more symbolic in nature. Though hundreds of millions of unemployed urban and rural residents are enjoying the benefits of the pension systems, the monthly endowments of less than 100 yuan make little difference to their livelihoods. The Chinese government should increase its contribution to pensions and make it mandatory for individuals to contribute to the pension pool. The local government should pay for those who cannot afford to pay.

In spite of these minor flaws, the unification of the pension schemes for rural residents and unemployed urban residents is a step forward. The measure will help meet the mounting challenges China faces from its ageing society. However, there is still a long way to go for the integration of all pension schemes. More needs to be done to integrate all the pension schemes, including the pension scheme for workers with government and government-sponsored institutions.

The author is a columnist with China.org.cn. For more information please visit: http://www.keyanhelp.cn/opinion/muguangzong.htm

This article is translated by Li Huiru. Its original unabridged version was published in Chinese.

Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.

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