WORKERS CAPITAL

Beijing Pivots Towards Private Pensions

China expanded its two-year-old private pension project this week in an attempt to reduce financial strain on the current state pension system from the rapidly aging population.

A group of elderly pensioners outside on a bench. AFP
Blog Post by Carl Minzner

December 16, 2024 

As China’s rapidly aging population creates increasing financial strains on state pension systems, Beijing is pushing Chinese citizens to plan for their own retirements.

On December 15, Chinese authorities launched a national expansion of their two-year old pilot private pension pilot project. According to the state circular issued jointly by tax, finance, and human resource bureaus, citizens participating in either of the two primary state retirement systems are authorized to open private pension accounts. Existing tax incentives under the 2022 pilot project, authorizing citizens to take pre-tax deductions of 12,000 RMB (US 1,670), are to be applied nationwide in order to encourage citizens to save for their own retirements. Local authorities are encouraged to add additional financial products – particularly government bonds – to the range of investments that citizens can hold in their private pension accounts.

This move reflects an effort by Beijing to build out private pensions in the face of the increasing financial stresses that China’s rapidly aging society is placing on the public pension system. Over the past decade, Chinese authorities and scholars have regularly warned that existing retirement ages for public pensions - 50 (for blue-collar women), 55 (for white-collar women), and 60 (for men) were unsustainable given 21st century demographic realities (with lifespans approach 80 years old). In September, Chinese authorities announced that as of 2025 those ages will begin to steadily rise over the next 15 years - to 55, 58, and 63 - respectively.

It is unclear how effective China’s experiment with private pensions will be. As the scholar Mark Frazier has noted, China’s ongoing experiments with pension reform reflect a neoliberal authoritarian social policy that involves outsourcing state pension promises – first (in the early 2000s) from state-owned firms to local governments, and now (in the 2020s) from state authorities to the market (and individuals themselves). But Chinese citizens have been reluctant to embrace private pension accounts. As of summer 2024, while 60 million citizens had opened such accounts under the pilot project, only a fifth had actually made contributions.