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«D I R E C T I O N S I N D E V E LO P M E N T Human Development Public Disclosure Authorized The Elderly and Old Age Support in Rural China Challenges ...»

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• Establishing information systems required to support the new program and linking them to related programs, such as the New Cooperative Medical Scheme, and to other localities. The government’s stated intention is to extend the systems to grassroots levels, although implementation presents challenges for both the systems’ capacities and personnel training. Moreover, it risks fragmentation of information systems if not closely managed (although the standardized software from the MHRSS should help in promoting greater coherence than has been observed in urban schemes). The challenge of integrating information systems is likely to be more acute in provinces where management of the New Cooperative Medical Scheme and 104 The Elderly and Old Age Support in Rural China the new rural pension scheme remains divided between the Ministry of Health and the MHRSS.

• Penetration of financial and banking services in rural areas and the effect of implementing the scheme on payment systems and the systems of collections for contributions. The MHRSS is working actively on this issue in cooperation with national banks for better rural coverage (one example of such a partnership is with the Postal Savings Bank), but even banks with extensive coverage do not have branches in all townships (an estimated 7 percent of townships do not yet have a bank). The roles for nonbank financial institutions and reliance on mobile banking may merit further exploration (Pickens, Porteous, and Rotman 2009).

• The level of contribution matching for individual accounts across counties (which raises issues of equity). The obvious challenge is avoiding a situation in which poor counties fail to match individual account contributions (resulting in lower accumulations for the poor) while still maintaining enough local interest in the scheme to encourage accountability at the county level. Initial experience suggests that different balances are being struck. In some provinces (for example, Mongolia and Ningxia), the province has been financing the match, whereas in others (for example, Shandong), the aim is to have the counties entirely finance the match.

As stated earlier, the new rural pension pilot has many positive and innovative features. At the same time, although the scheme relies on a broadly sensible design and represents a milestone in social policy in China, the preceding discussion of issues identifies scope for improvement and further refinement of some policy parameters if China’s objectives are to be fully attained.

In addition to the new rural pension pilot, experience is growing with “urban resident” pension schemes, designed along similar lines to the rural pension pilot. The potential dovetailing of these schemes and those for rural workers over time is another emerging issue in pension policy. In cities with sufficient fiscal capacity, a recent rapid expansion in local schemes offers residents outside the urban workers’ scheme a combination of an individual account and a basic pension. In some cases (for example, Hangzhou), local authorities match individual account contributions, whereas in others (for example, Beijing), no such match occurs.

In rapidly expanding areas, such schemes have already been merged with ongoing rural schemes to achieve an integrated residents’ pension scheme;

Evolution of the Rural Pension System in China 105 in a number of cases, benefit levels are equivalent between participants with urban hukou and those with rural hukou from the prefecture. Like the rural pension pilot, such initiatives seem promising as vehicles for expanding pension coverage to the nonwage sector and for promoting the vision laid out by policy makers of rural-urban integration.

Conclusion The experience reviewed in this chapter suggests a number of areas that will require particular attention from national policy makers as they implement the national pilot and continue to develop the national policy framework for rural pensions. These areas include (a) the appropriate split between the central government and subnational levels on financing roles;

(b) portfolio rules and balancing protection of pension investments against the need for adequate returns to increase the real value of pensions;

(c) issues of regulation and oversight that continue to remain weak; (d) treatment of the population over 45 years of age, who will have insufficient contribution histories under regular rules; (e) a close examination of appropriate retirement ages based on updated rural mortality information;

(f) transition and portability issues between old rural schemes and new schemes, and between rural and urban schemes; and (g) specific financing options, such as buffer funds, to deal with an aging rural population.

The next chapter considers possible directions for evolution of the national rural pension pilot in the medium term, acknowledging the many positive features of the pilot. As discussed in this chapter, the national pilot is a milestone in the development of the rural social protection system in China. As it is rolled out, review of whether further refinements are desirable, in particular those related to universality of coverage of the basic benefit and the relative incentive roles of the individual account and the basic benefits, will be useful. The following chapter discusses these issues, offering proposals for consideration.


1. In October 1995, the State Council redistributed a MOCA circular, “Further Improving the Rural Pension Insurance.”

2. The pension benefit calculation formula was (0.008631526) * (accumulation in individual account).

3. See P. Chen (2002), Liang (1999), Ma (1999), and Shi (2006) for a discussion of the shortcomings of previous rural pension schemes.

106 The Elderly and Old Age Support in Rural China

4. See Peng (1996) for examples of massive differences in the matching of cadre and farmer contributions under local schemes.

5. For detailed descriptions of the systems of Baoji, Beijing, Suzhou, and Yantai, see Wu (2009). For a detailed discussion of the Baoji pilot rural pension experience, see Zhang and Dan (2008).

6. See Zhang and Dan (2008), who argue that such a system will encourage family disputes, whereas Sun (2006) considers such a system to be a pragmatic and innovative approach to addressing individuals with short contribution histories.

7. For a comprehensive discussion of recent experiences with “closing the coverage gap” through the extension of pension systems to rural and informal sector populations, see Holzmann, Robalino, and Takayama (2009); see Palacios and Robalino (2009) on the framework for matching defined contribution schemes.

8. See Lin (2006) for European, Commonwealth of Independent States, and low-income countries; Gong (2006) for Japan; Su (2007) for the Republic of Korea; and Leisering, Sen, and Hussain (2002) and Zheng (2007) for a general discussion of the subsidy approach.

9. See Zhuhai City, “Transitional Pension Method for Farmers and LandExpropriated Farmers,” as described by Wu (2009). Along similar lines, Donghua Wang (2006) has suggested that income from the auction of land-use rights and resources from state-owned assets should also be used for such purposes.

10. See Y. Chen (2004) and Dong (2008). The assumptions underlying these simulations merit note. For example, Chen used a projection model based on data from Jiangsu Province and assumes that one-quarter of the increase in general revenues would be needed for rural pension subsidies to support a universal pension for men and women at age 60 and 55, respectively.

Assuming this subsidy represents 2.5 percent of general revenues, a universal farmers’ pension of 825 yuan annually could have been provided in 2010.

11. See Y. Chen (2004) and Qin (2007) for approaches to allocating financing responsibility among levels.

12. See Mi and Yang (2008) on the grain payment proposal, supported by a survey in Anhui Province that found that about one-fifth of rural respondents would prefer to make contributions in grain. See Lu (2004) and Zhan (2004) for proposals for the allocation of grain subsidies to farmers.

13. See L. Zhang (2007) regarding a reserve fund proposal. See Lü (2005) for proposals for higher-return portfolio options.

14. See http://www.cnr.cn/china/gdgg/201009/t20100907_507012375.html.

15. See World Bank (forthcoming b) for a discussion of social assistance benefits in rural areas. Roughly 5.3 million people received wubao nationwide in 2007.

Evolution of the Rural Pension System in China 107

16. Chile provides an example of such an approach.

17. The possible coverage of dibao household contributions raises secondary questions about how to subsequently treat rural pension income in the dibao eligibility determination process, because the marginal cost of pension receipts could easily outweigh benefits once both the loss of the dibao benefits and the attendant noncash benefits that attach to dibao receipt are taken into account.

18. Hukou is the residence permit system in China, which assigns the permit largely according to place of birth and the residence status of one’s parents.

References Beijing Municipal Government. 2005. “Notice of Guide on Construction of Rural Social Pension of Beijing Government.” [In Chinese.] Accessed October 12,

2011. http://govfile.beijing.gov.cn/Govfile/front/content/22005062_0.html.

———. 2007. “Provisional Method for New Rural Social Pension.” [In Chinese.] Accessed October 12, 2011. http://zhengwu.beijing.gov.cn/fggz/zfgz/ t932987.htm.

———. 2009. “New Pension Scheme for Both Rural and Urban Residents.” [In Chinese.] Accessed October 12, 2011. http://zhengwu.beijing.gov.cn/gzdt/ gggs/t1015867.htm.

Chen, Ping. 2002. “Establishing a Unified Social Security System Is a Shortsighted Policy.” [In Chinese.] China Reform 4: 16–17.

Chen, Yi. 2004. “Rural Pension: Design and Argument for a New Scheme.” [In Chinese.] Academic World 5.

Dong, Keyong. 2008. “Establishing a Universal Pension Scheme in Rural Areas.” China Youth News, July 16, 2008.

Gong, Xiaoxia. 2006. “Rural Pension System and Its Lessons in Developed Countries.” [In Chinese.] Journal of Central Finance University 6.

Holzmann, Robert, David Robalino, and Noriuki Takayama, eds. 2009. Closing the Coverage Gap: Role of Social Pensions and Other Retirement Income Transfers.

Washington, DC: World Bank.

Leisering, Lutz, Gong Sen, and Athar Hussain. 2002. People’s Republic of China:

Old-Age Pensions for the Rural Areas: From Land Reform to Globalization.

Manila, Philippines: Asian Development Bank.

Liang, Hong. 1999. “Economic Analysis of Current Rural Community Security of China.” [In Chinese.] Dissertation, University of Fudan.

Lin, Yi. 2006. Research on International Comparison of Rural Social Security and Its Lessons. [In Chinese.] Beijing: China Labor and Social Security Publishing House.

108 The Elderly and Old Age Support in Rural China Liu, Chunzhi. 2007. “Improving Rural Pension Scheme Design.” [In Chinese.] China Finance 6.

Liu, Zilan. 2008. “Reflection and Reconstruction of China Rural Pension.” [In

Chinese.] Business School of Hu’an Normal University, Management World 8:


Lu, Haiyuan. 2004. “Innovation of Rural Social Pension Scheme: Produce for Social Security.” [In Chinese.] Seeking Truth 3.

Lü, Jiming. 2005. “Current Situation of Rural Social Security and Analysis of Its Development Path.” [In Chinese.] Journal of Ningxia Communist School 6.


Ma, Limin. 1999. “Slowing Down Rural Pension.” [In Chinese.] Exploration and Debate 7: 11–12.

Mi, Hong, and Cuiying Yang. 2008. Basic Theoretic Framework Research on Rural Pension System. [In Chinese.] Guang Ming Publishing House, Shanghai.

MOCA (Ministry of Civil Affairs). 1993–97. Bulletins. Ministry of Civil Afairs, Beijing.

———. 1995. “Further Improving the Rural Pension Insurance.” [In Chinese.] Accessed October 12, 2011. http://gd.lss.gov.cn/gdlss/zcfg/zc/ncshbx/ncylxgl/ t19951019_3337.htm.

MOLSS (Ministry of Labor and Social Security). 1998–2007. Bulletins. Beijing, MOLSS.

———. 2003. “Notice on Seriously Improving Work on Current Rural Pensions.” [In Chinese.] Accessed October12, 2011. http://jlfusong.si.gov.cn/E_ ReadNews.asp?NewsID=139.

NBS (National Bureau of Statistics). 2009. Chinese Labor and Social Security Yearbook 2008. Beijing: Chinese Labor and Social Security Yearbook Editorial.

———. 2008. Chinese Labor and Social Security Yearbook 2007. Beijing: Chinese Labor and Social Security Yearbook Editorial.

———. 2007. Chinese Labor and Social Security Yearbook 2006. Beijing: Chinese Labor and Social Security Yearbook Editorial.

———. 2006. Chinese Labor and Social Security Yearbook 2005. Beijing: Chinese Labor and Social Security Yearbook Editorial.

———. 2005. Chinese Labor and Social Security Yearbook 2004. Beijing: Chinese Labor and Social Security Yearbook Editorial.

———. 2004. Chinese Labor and Social Security Yearbook 2003. Beijing: Chinese Labor and Social Security Yearbook Editorial.

———. 2003. Chinese Labor and Social Security Yearbook 2002. Beijing: Chinese Labor and Social Security Yearbook Editorial.

———. 2002. Chinese Labor and Social Security Yearbook 2001. Beijing: Chinese Labor and Social Security Yearbook Editorial.

Evolution of the Rural Pension System in China 109

Palacios, Robert, and David Robalino. 2009. “Matching Defined Contributions:

A Way to Increase Pension Coverage.” In Closing the Coverage Gap: The Role of Social Pensions and Other Retirement Income Transfers, ed. Robert Holzmann, David Robalino, and Noriyuki Takayama, 187–202. Washington, DC: World Bank.

Peng, Xisheng. 1996. “Township and Village Enterprises and Rural Social Security in the South of Jiangsu Province.” [In Chinese.] Shanghai Finance 6: 31–32.

Pickens, Mark, David Porteous, and Sarah Rotman. 2009. “Banking the Poor via G2P Payments.” Focus Note 58. Washington, DC: CGAP.

Qin, Zhongchun. 2007. “The Urgency, Current Situation and Policy Recommendation on Building Rural Pension System.” [In Chinese.] China Economic Times.

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