Writter's own choice (Pension Reform in China)

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Pension Reform in China
Introduction
According to a report by Hu Slater (2011), China faces significant challenges since the economy of the country is entering into a transitionary period. The Chinese government understands that as the country heads towards economic growth that is driven domestically, and away from the dominant exports and heavy industry, there will be a need to significantly develop the social welfare system. Pension reform and comprehensive welfare system is required since OECD countries are still below par. However, there are several reasons for the government to reduce the disparity between rural and urban registered workers. Over the recent past, labour mobility has been on the rise and this has had a huge impact on social cultural issues with the support networks of traditional family being unable to fulfil the welfare role they performed in the past. This document critically analyses different aspects of pension reforms and its impacts on social and cultural change in China today.
There are two major challenges which the pensions program in china faces. First, only a fraction of the population is covered by the current system, while the structure of the system still fails to function as intended (Clarke, 23). Second, the population across the world is aging at a rapid rate, with the ratio of 65 year-olds to those aged between 15 and 64 years, which at the moment is 11%, expected to reach 38% by 2050. High technological innovation and quality health care systems have increased the lifespan of people implying that the dependency ratio will definitely increase as percentage of the aged population increases (Barr & Diamond 45). Experts argue that this will have a severe impact on the working class as well as the economy at large thus impacting negatively on the sociocultural lifestyles of the society. The pension reform plan is yet to be successful in addressing various challenges which people faces taking into consideration that only a minor segment of the population has been covered.
In 1990s, the government established the multi-pillar system which contained the individual fully funded accounts to supplement the basic pension which accounted for 20% of the average urban wage. However, these accounts are almost empty since the contributions have already been used to pay the current pensioners. Experts say that despite the fact that rural employees account for the biggest percentage of workers, the level and coverage of their pensions is very low. The Chinese government recognizes this fact and this prompted it to issue a new plan in 2009. To address people’s social welfare, several experts have come up with propositions which the government can undertake to ensure that the quality of life does not worsen in the future. Oksanen (2) believes that Chinese authorities should adopt a pension reform system that addresses the needs of the urban and rural population separately.
Urban system
The Urban pension system in China is fragmented and only covers approximately 55 present of employees. Not only is the contribution rate at 28% become a major obstacle in the increase of coverage, but this contribution level cannot sufficiently support the current level of pension because the aging of the population is progressing at a rapid rate (Li et al 71). Several experts are of the opinion that it is impossible to increase coverage without significantly lowering the pension contribution rate. The benefits should also be adjusted so that the pension system can become credible and be able to support the high ageing rate of the population. There are several options which can be used to reduce the decline of people’s social and cultural lifestyles. One of the options is to pay for the pension rights which have accrued until recently through the issue of government debt and developing a clearly funded pension system from now on. However, it is not self-evident that the financial institutions and markets will be able to absorb this increase in funds. It is important to note that in China, especially in the mid-term future, the rate of return on assets in fully funded accounts will most likely be lower than the rate of growth of wages (Saldittn et al 82). This implies that it is not entirely applicable for a fully funded system to present a higher return compared to a public PAYG system.
Different kinds of arguments have emerged relating to the sociocultural wellbeing of the pensioners. For instance, Clarke (42) says that in Western Europe since late 1940s, and also in China, it is obvious that the older members of the current workforce as well as current retirees immensely contributed to the wealth of the country. Therefore, it is justifiable to ensure that they are provided with pension benefits which are much higher compared to what they paid for inform of pension contributions. However, experts say that such a principle may be risky since it may lead to a situation that does not aim at accumulating huge reserves. It is important to take into account when it is still early enough the projected increase in longevity s as to cater for the sociocultural needs of the retirees (Zheng 45). The government should also consider increasing the retirement age of its citizens so as to significantly reduce the burden on the tax payers and increase the quality of life of the country at large.
One of the systems that have been proposed by a number of experts is known as notional defined contribution (NDC). This system according to several experts is one of the efficient principles that can be used to uplift the social and cultural state of several retirees in China. Some of the reform scenarios under NDC aimed at securing financial sustainability have already been proposed. Authorities say that all the pension rights which have already been accumulated in the past will be respected and that no individual will be negatively affected by the new proposals. Slater says that the implicit pension debt, ...