The Urban Pension System

This chapter examines China’s pension reform. China implemented a public pension system in the early 1990s. The system consists of two pillars. The first pillar, funded by 17 per cent wage taxes paid by enterprises, guarantees a replacement rate of 20 per cent of local average wage for retirees with a minimum of fifteen years of contribution. The second pillar provides pensions from individual accounts financed by a contribution of 3 per cent and 8 per cent wage taxes paid by enterprises and workers, respectively. More recently, a new reform was implemented, which adjusted the proportion of taxes paid by enterprises and individuals and the proportion of contribution for individual accounts. Individual accounts are now funded by a wage tax of 8 per cent paid by workers only. The rural pension system is also discussed.