Pension reform paves way for social equality

China's plan to unify its two-tiered pension system is expected to improve social equality by eliminating a major disparity between public and private employee benefits.

According to the reform measures announced last week by the State Council, the segregated system will be unified, with public institution staff brought under the same pension rules as private sector employees.

Pension reform has been an ongoing process in the world's most populous country over the past two decades, the result of which has been a system that requires both employers and employees to contribute to pension funds, which are distributed to employees after retirement.

The pension benefit amount is based on how much both employers and employees have contributed to the pension account.

The majority of Chinese workers must pay 8 percent of their salaries each month toward their pension benefits, while employers are required to contribute an additional 20 percent of an employee's salary toward pensions.

However, pension reform has stalled at public institutions, which have an estimated workforce of 40 million, including civil servants, teachers, doctors, and science researchers. These public employees have inherited a six-decade-old pension system that does not require staff contributions, even though they enjoy bigger pension payments, which are entirely state-funded.

The two-tiered system has led to public complaints about inequality, with many arguing it is unfair for public employees to enjoy better pensions than private sector staff, even though they do not pay a dime during their working years.

An ongoing survey on the "dual pension system" conducted by Xinhua News Agency on its website shows that pension disparities and inequality were the top concerns among respondents, followed by the system's potential impediments to switching jobs, and its growing burden on government spending.

"The reforms will be conducive to building a social pension system that is fairer and more sustainable," Chinese Vice Premier Ma Kai said.

Ma said the unified system will also boost other reforms at public institutions, such as human resources management. Under the segregated pension system, public institution staff with guaranteed state-paid pensions have been reluctant to switch to jobs "outside the system" for fear of forfeiting benefits.

Analysts said that the new reform measures will make it easier for workers to switch between public and private employers.

"The reform measures will change the old stereotype that public institution staff are of a noble class compared to other workers. They are weakening the traditional view that a job inside the state-backed pension system means life stability," said Su Hainan, vice president of the China Association for Labor Studies.

"By bringing different groups of people under the same social benefit framework, the reforms reflect China's efforts to promote fairness and justice," said Wang Yukai, a professor at the Chinese Academy of Governance.

Wang said that pension system reform has long faced many obstacles, but the latest measures will boost expectations for future reforms.

Given possible opposition from public institution staff, the government pledged that current public employees will be able to retain their state-funded benefits earned prior to the reform, according to the State Council.

Meanwhile, a "career bonus scheme" will be established for staff as a supplementary measure to ensure that their pension benefits will not be severely downgraded following the reforms, according to the State Council.