Transcript A Comparative Analysis of the Welfare State in OECD Countries

Pension reform in China in international
perspective
Seminar presentation:
National Pension Research Institute
11 October, 2007, Seoul, Korea
Willem Adema
Head, Asian Social and Health Outreach, OECD
(www.oecd.org/els/social/family)
Presentation outline
o A summary of pension trends in OECD
countries, and Korea in particular
o Chinese pension policy
o
o
o
o
The demographic context
Past pension system development
The current system
Key challenges
Public pension spending increased by 1 per cent of
GDP from 1990 to 2003 and will increase further…
Public spending on pensions, per cent of GDP, 1990 - 2003
10
1990
2003
8
6
4
2
0
AUS
DNK
FRA
DE U
JPN
KOR
S WE
GBR
US A
OE C D
…and spending on health and long-term care
has increase even faster over the same period
12
Public spending on health and services for the elderly and disabled, per cent of GDP, 1990 - 2003
S ervices for elderly and dis abled (2003)
H ealth (2003)
S ervices for elderly and dis abled (1990)
H ealth (1990)
10
8
6
4
2
0
AUS
D NK
FRA
DE U
JPN
KOR
S WE
GBR
US A
OE C D
For low-income workers with a full contributory
record Korean public pensions are significant
Net relative pension levels before and after reform (since 1990) for low-income workers (50% of avg.
earnings)
Before reform
After reform
Italy
Korea
Sweden
France
Germany
Japan
UK
0
10
20
30
40
50
60
Employment among older workers in Korea is
higher than the OECD average…
Employment population ratios, prime-age and older workers
25-54
55-64
90.0
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
SW
E
N SA
R
P
O
J
U
K
U
K
S
D EU LD RA
AN AU
C
N
F
E
C
D
O
C
I
H
IN
D
..but female employment in Korea is relatively
low...
female employment rate
D
EC
O
US
UK
Ita
ly
Ja
pa
n
Ko
re
Ne
a
th
er
la
nd
s
Sw
ed
en
er
m
an
y
ce
G
Fr
an
a
Ca
na
d
Au
st
ra
lia
80
70
60
50
40
30
20
10
0
…while countries with relatively high female
employment also have the highest birth rates.
1980
Female employment rates, and total fertility rates
3.5
3.5
3.5
3.0
3.0
2.5
2.5
2005
IRL
3.0
PRT
GRC
2.0
ESP
AUS
NZL
ITA
TFR (2004)
TFR
2.5
BEL
USA
FRA
SWE
JPN
1.5
NLD
AUT
CHE
FIN
DEU
1.0
20
30
40
50
Employment rates of women
60
70
MEX
MEX
USA
USA
NZL
NZL
IRL
FRA
GBR NOR
GBR NOR
FIN DNK
FIN DNK
AUS
AUS
NLD
NLD
LUX
LUX
SWE
SWE
BEL
BEL
OECD
OECD
CAN
CAN
1.5
1.5
AUT
AUT
CHE
CHE
PRT
PRT
ESP
ESP
DEU
DEU
POL
POL JPN
ITA
ITA HUN
JPN
HUN
SVK CZESVK
CZE
GRC
GRC
KOR
KOR
1.0
1.0
40
40 50
50 60
6070
7080
EmploymentEmployment
rates of women
rates of women
2.0
GBR
TFR (2004)
KOR
2.0
ISL
IRL
FRA
NB Different scales on the horizontal axis of the panels; female employment has increased everywhere
8090
90
As a result Korea is projected to age more
rapidly than most other OECD countries…
Population aged 65 and over, relative to the population aged 20-64, 2000 and 2050
2000
80
OECD-2000
2050
OECD-2050
70
60
50
40
30
20
10
0
SWE
JPN
FRA
UK
Source: OECD (2007), Society at a Glance: OECD Social indicators.
DEU
NL
USA
AUS
KOR
…as well as China.
Population by age group, gender, in 2000 and 2050, in percentage of total population in each group
in 2050
in 2005
in 2050
in 2000
CHINA
KOREA
WOMEN
MEN
WOMEN
MEN
85+
80 - 84
75 - 79
70 - 74
65 - 69
60 - 64
55 - 59
50 - 54
45 - 49
40 - 44
35 - 39
30 - 34
25 - 29
20 - 24
15 - 19
10 - 14
5-9
0-4
85+
80 - 84
75 - 79
70 - 74
65 - 69
60 - 64
55 - 59
50 - 54
45 - 49
40 - 44
35 - 39
30 - 34
25 - 29
20 - 24
15 - 19
10 - 14
5-9
0-4
,10
,8
,6
in 2000: 47.0
in 2000: 11
,4
,2
,0
,0
,2
Total population (in millions)
Old age dependency ratio (65+ in % 20-64)
,4
in 2050: 44.3
in 2050: 68
,6
,8
12
10,10
8
6
in 2005: 1 313.0
in 2005: 12
4
2
0
0
2
Total population (in millions)
Old age dependency ratio (65+ in % 20-64)
4
6
in 2050: 1 408.8
in 2050: 42
8
10
12
China in 2005

GDP per capita:
US$ 1944 (IMF estimate)

Poor People (urban):
26 million (NBS)

Urbanization:
45 % (UN Population Database)

Life expectancy at birth: 74.5 / 70.8 years
(female/male; UN Population Database)

Fertility rate:
1.3 – 1.8

Median Age:
32.6 years (UN Pop. Database)
(Chinese census/UN est.)
From 550 million people in 1950 to 1.4 billion
in 2050: Ageing will erode China's
demographic dividend
90
70
60
Total
50
Child
40
Old-age
30
20
10
50
20
40
20
30
20
20
20
10
20
00
20
90
19
80
19
70
19
60
19
50
0
19
Dependency Ratio
80
Pension development in China

1951: Communist Government introduced Regulations
on Labour Insurance

1966: Cultural Revolution brings organized Old Age
protection to an end

1978: SOEs bear responsibility for labour insurance
(including pensions)

1986: Changing pensioner/workers ratio initiates
creation of collective funds, managed by county-level
Social Insurance Agencies
Pension development in China (contd.)

1990s: SOE/COE-workers and employees from other
enterprises are covered by some sort of three-pillar system
(various state/employer/ employee-based contribution and
benefit schemes are established)

1997: State Council Document 1997 - Decision of the
State Council on Establishment of Unified Basic Old Age
Insurance System for Enterprise Staff and Workers
The three pillar urban pension system
Voluntary
Pillar III
Individual
Savings
Private Sector
Pillar II
Enterprise
Annuity
Pillar I
Statutory
Public Sector
Tier I:
Social Pool
Tier II:
Individual
account
National Social Security Fund
National Social Security Fund (NSSF)

Established in 2000 as fund of “last resort”

Purpose: Develop a national long-term strategic reserve to
finance future social security expenses

Managed by NCSSF; representatives from MOF, MOLSS,
State Council and others

Funding comes from fiscal allocation, sales of state-owned
shares, lottery profits, invest. returns
Contributions and benefits
Contributions
Pillar I
Benefits
Tier I
(PAYG)
Employer 20% of employee's wages 35% of average monthly wages in
province
(max 300% min 60% of prov.
wages)
(if >15 years of service)
Tier II
(Funded)
Employee 8% of his or her wages
individual account divided by 120
(expected to equal 24.2% of
average monthly wages in prov.)
Pillar II
(Funded)
employers’ + employees’ voluntary
contributions
individual account
Pillar III
(Funded)
employees make voluntary
contributions
individual account
28% of employee’s wages +
voluntary contributions
59.2% of aver. monthly wages +
voluntary pensions’ benefits
TOTAL
Other Sources of Retirement Income

Private Saving: High saving rate is not reflected in household
saving rate (~50% of 55+ hold less than half of annual earnings
in financial assets)

Family-related old age provision: Long tradition in Confucian
China; 45% of elderly live with children

Rural pension system: 85% rely on family-support; around 54
million receive pension benefits; differing concepts between
MOCA, MOLSS, etc impede a consistent approach.

“Minimum Living Guarantee” and “Five Guarantees”:
Combined coverage of 22 million (urban) + 19 million (rural)
U
ne
m
ld
O
ea
lth
M
ce
at
er
ni
ty
In
ju
ry
ur
an
na
l
In
s
cc
up
at
io
H
In
su
ra
nc
e
tI
ns
ur
an
ce
Ag
e
pl
oy
m
en
O
millions of people
Contributors to Social Insurance
Programmes 1999 and 2005
140
120
100
80
60
40
20
0
1999
2005
20
05
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
% of total population
Coverage of pension insurance
1989 to 2005
16
14
12
10
8
6
4
2
0
50
250
40
200
30
150
20
100
50
10
0
0
Urban Employees (left axis)
Participating Employees (left)
Coverage of urban employment (right)
% of urban employment
300
19
8
19 9
9
19 0
9
19 1
9
19 2
9
19 3
9
19 4
9
19 5
9
19 6
1997
9
19 8
9
20 9
0
20 0
0
20 1
0
20 2
0
20 3
0
20 4
05
millions
Urban coverage of old age pension
insurance, 1989 - 2005
Coverage of pensions among ‘silvers’
1990 to 2005
% of populaton 60+
25
20
15
10
5
0
1990
1995
2000
2005
140
6
120
5
100
4
80
3
60
2
40
20
1
0
0
Contributors/ Recipients
millions of people
Contributors/Recipients relation in
the Pension System
1989 1991 1993 1995 1997 1999 2001 2003 2005
Dependency Ratio (right axis)
Contributors (left)
Recipients (left)
Trends in retirement insurance
revenue/expenditure and cumulative
balance 1989 to 2005
3
% of GDP
2.5
2
1.5
1
0.5
0
1989 1991 1993 1995 1997 1999 2001 2003 2005
Balance at Year-end
Revenue
Expenditure
10000
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
19
8
19 9
9
19 0
9
19 1
9
19 2
9
19 3
9
19 4
9
19 5
9
19 6
9
19 7
9
19 8
9
20 9
00
20
0
20 1
0
20 2
03
20
0
20 4
05
in 2005 Yuan
Trends in real value of average annual
pension, 1989 to 2005
Trends in relative pensions, 1989 to 2005
100
90
80
70
60
50
% of GDP per capita
% of SOE wage
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
40
Social Security Subsidies per capita
selected provinces (in constant 2005 CNY)
Ch
in
a
To
ta
Be l
i
Sh jing
an
gh
ai
Li
ao
ni
ng
H
ei Jilin
lo
ng
j
Sh ian
an g
do
ng
H
e
G
ua nan
ng
do
ng
Si
ch
ua
n
450
400
350
300
250
200
150
100
50
0
1999
2005
Low Coverage / High Contribution
Rate
• Low coverage:
- incentive problem
- limited public trust
- administrative procedure
- exclusion of migrants
- decline of SOEs
• High contribution rate:
- former generous replacement rate
- low effective retirement age
- limited risk-pooling due to low
coverage
Portability / Administrative issues
• Portability:
- legal/administrative barriers
- insufficient protection of migrants
- creates labour market rigidities
• Administrative issues:
- changing responsibility between
government units
- financial responsibilities are unclear
- incremental/experimental approach
creates market distortions
Encourage private participation /
Low return on investment
• Private participation:
- few enterprises have created
EAs for workers
- family-related old age care
needs to be state-supported
- third pillar is still negligible
• Return on investment:
- narrow investment restrictions
- immature financial markets
- fraud is a serious problem
Concluding remarks
• Will China grow rich before it grows old
• “Demographic Window” until around 2015
• Low coverage, even without accounting for rural areas
• Relatively high replacement rates; financial capacity at local
level
• Institutional issues
More information
OECD (2007), Facing the Future, Korea’s Health, Family
and Pension Policy Challenges.
OECD (2007), Pensions at a Glance.
www.oecd.org/els/social/pensions
Salditt, F, P. Whiteford, and W. Adema (2007), “Pension
Reform in China: Progress and Prospects”, OECD,
Social, Employment and Migration Working Papers,
No. 53, www.oecd.org/els/workingpapers