80+

75–79

70–74

65–69

60–64

55–59

50–54

45–49

40–44

35–39

30–34

25–29

20–24

15–19

10–14

5–9

0–4

China’s large cohort of young urban workers will

be at or near retirement by 2025

Urban population by age and sex

Male Female 1990

80+

75–79

70–74

65–69

60–64

55–59

50–54

45–49

40–44

35–39

30–34

25–29

20–24

15–19

10–14

5–9

0–4

2025

30 25 20 15 10 5 0 5 10 15 20 25 30

Note: China’s urban population is growing through natural population increase, in-migration,

and reclassification of rural places as urban.

Millions

Bureau

of the

Census

Old Age Security 

Reform in China

China is undertaking a major 

revamping of its old age security

system because it is faced with 

a falling proportion of workers 

to pensioners, declining income 

replacement levels, precarious

funding, and diminishing coverage

of the labor force under the current

system. China is reforming its 

urban old age security system 

Millions of 

pensioners

25

20

0

5

10

15

20

25

30

35

78 80 83 84 85 86 87 88 89 90 91 92 93

10

15

Ratio of workers

to pensioners

China faces a declining

ratio of workers to

pensioners as number of

pensioners increases

Year

30

5

0

35

IB/95-1

Issued November 1995

U.S. Department of Commerce

Economics and Statistics Administration

BUREAU OF THE CENSUS

and introducing a new system 

for the rural population.

Reforming the Urban System

Reform of the urban old age pension system, while still evolving, addresses both funding and benefits.

A regionally-based pension pool

system is replacing the work unit

as the focal point of the old age 

security system. Until recently,

each enterprise provided benefits

to its retirees, covering the costs

from current operating funds. Now,

pension pools are being formed for

administrative areas (usually counties or cities; a few at the higher

prefecture or province level). Work

units contribute to the pools on the

basis of their total wage bills, and

the pools assume responsibility for
1978

1980

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

80+

75–79

70–74

65–69

60–64

55–59

50–54

45–49

40–44

35–39

30–34

25–29

20–24

15–19

10–14

5–9

0–4

Rural China is aging less rapidly but has

more old people than urban areas

Rural population by age and sex

Male Female 1990

80+

75–79

70–74

65–69

60–64

55–59

50–54

45–49

40–44

35–39

30–34

25–29

20–24

15–19

10–14

5–9

0–4

2025

50 20 10 40 0 30 10 40 20 50 30

Note: China’s rural population is declining through out-migration and reclassification of 

rural places as urban.

Millions

Percent of urban employment

Employment in the private sector

is growing in urban China

0 20 40 60 80 100

Note: Private includes foreign invested and self-employed.

Private Collective State

BUREAU OF THE CENSUS INTERNATIONAL BRIEF November 1995

payment of benefits. By the end of

1994, about two-thirds (19 million)

of pensioners and half (83 million)

the urban work force were covered

by the new pools.

A network of social security 

offices is being established to administer the reformed system.

These offices, which will service 

retirees from a large number of 

enterprises, are expected to be

more efficient than the former 

decentralized system.

Pension financing is being diversified, with the employer (work unit)

no longer the sole contributor to the

pension fund. Employees now also

make contributions, and the government is to contribute as needed

in its role as pension guarantor.

Presently, employers contribute 

15 percent or more of total payroll.

Employees are now contributing

only 1 to 3 percent of wage income, but the rate is gradually 

increasing by 1 percent every 2

years. As the employee contribution rate rises, the employer’s rate

is to fall until each is contributing

roughly 50 percent of total 

premium costs.

The system of benefits also is

changing, as multiple plans replace

the single defined benefit plan.

The multiple plans seek a balance

between incentives for participation

and social equity. The specifics of

each type of plan and the combination of plans available to workers

vary across regions. In general,

three types of plans are emerging:

 The basic pension plan pays

benefits based on the average

local wage (an equalizing characteristic of the benefit formula) and years of qualified service (an incentive aspect of the

plan). Retirees receive a percentage of the local average

wage prevailing in the year

prior to retirement.

 The supplementary pension

plan is similar to occupational

pension plans in developed

countries. This defined benefit

plan takes into consideration
1978

1980

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

Percent of rural employment

Off farm employment in collective and private

enterprises is expanding in rural China

0 20 40 60 80 100

Private enterprises Collective enterprises Farmers

BUREAU OF THE CENSUS INTERNATIONAL BRIEF November 1995

the individual worker’s earnings and the number of years

of qualified service. In most

cases, maximum and minimum

wage levels are imposed to

introduce an equalizing element to this pension as well.

The basic and supplementary

pensions are adjusted annually

for inflation. In addition, pensions are raised as labor productivity increases.

 The third type of plan is a

compulsory savings plan.

Contributions go into a special

individual bank account. At 

retirement, monthly payments

are disbursed from the principal and interest built up in this

account with payments based

on the accumulation and average life expectancy at retirement.

Pools vary in the distinction made

between those who retired under

the old system, workers hired under the old system, and workers

hired under the new system. 

Nevertheless, all pools are required

to honor previous obligations to 

existing retirees.

Worker coverage is more comprehensive under the new system.

Unlike the old system which covered only State workers and 

employees of some urban collectives, the new system is slowly being opened up to workers in other

rapidly growing urban sectors—

foreign-funded enterprises, private

enterprises and the self-employed.

The new system is partially funded,

replacing the former pay-as-you-go

system. The current contribution

rates are intended to generate an

annual surplus equivalent to about

10 percent of benefit payments in

anticipation of rising costs as the

reformed system matures and 

China’s population ages.

Expanding the Rural 

Old Age Security System

In rural areas, only local government employees, including State

teachers and employees of State

farms, are eligible for the pension

programs described above.

In an attempt to redress the imbalance in the provision of old age insurance between urban and rural

workers, the central government

has designed and is promoting a

special pension insurance program

for rural areas. The program is a

voluntary savings plan (defined

contribution and fully funded) targeted at individuals with rural

household registration (farmers,

employees of rural enterprises, and

the rural self-employed) between

20 and 60 years of age. Individuals may contribute between 2 and

20 yuan per month to be placed in

a special bank account. Local governments and rural enterprises

have the option of matching a percentage of the participant’s contribution. Pension payments begin

at age 60 based on contributions

and accrued interest.

Sustainability of the 

Reformed Urban System

The reformed urban system offers

generous benefits with high income

replacement ratios and with retirement at age 50 for women (age 55

for some women) and age 60 for

men. As China’s population ages,

the working population supporting

the system will be shrinking proportionately to retirees: the ratio of

population ages 20-59 to those 60

and over is projected to decline

from the current 6.7 to 5.0 in 2010

and 2.7 in 2025. The pension system will be paying benefits to more

people for longer periods of time as

life expectancy continues to increase. By the year 2025, life expectancy at age 60 will increase by

over 4 years. Despite these demographics, Chinese officials have

steered clear of any discussion of

reduction in benefits.

For the new system to remain

financially sound, it is imperative

that all participants meet their 

obligations and that funds are profitably invested. Some firms and

individuals are reluctant to join the

new compulsory pension pools because of concerns over the adequacy of funding for current and 

future obligations. Currently, nearly

one out of four participating enterprises, primarily loss-making state

enterprises, needs government 

assistance in paying premiums.

Also serving to undermine confidence in the system are reported

instances where local governments

have invested pension funds under

their control in risky development 

projects or used them to cover

budgetary shortfalls. Given the 

underdevelopment of financial markets in China, safe and profitable

investments are few.
BUREAU OF THE CENSUS INTERNATIONAL BRIEF November 1995

What Next?

Several government leaders advocate moving pools up from the 

lower levels to the province and

eventually the national level in 

order to maximize the benefits of

risk sharing and facilitate the 

development of labor markets.

However, substantial regional 

variation in salary levels and in the

inherited obligations and relative

burden under the former system

hinder expansion of pools.

While the reformed pension system

embraces more workers, it is still

largely limited to the urban labor

force, which comprises just 27 percent of China’s total labor force.

The remaining 73 percent only

have the option of contributing to

the voluntary savings plan. Some

regions are considering expanding

coverage to the growing number of

laborers employed in rural enterprises and to migrant laborers in

urban areas that lack urban residency status (currently excluded

from most urban pension pools).

Funding for this study is provided

by the Office of the Demography of

Aging, National Institute on Aging.

Population projections were modeled at the International Programs

Center, Population Division, Bureau

of the Census. Other data are

from China State Statistical Bureau,

Statistical Yearbook of China 1995.

For further information, contact 

Loraine A. West at 301-457-1362.

Tianjin

Shanghai

Hainan

Workers per Retiree for Provinces of China: 1993

Xinjiang

Tibet

Qinghai

Sichuan

Yunnan

Guangxi

Guangdong

Fujian

Zhejiang

Jiangsu

Shandong

Heilongjiang

Ningxia

Shaanxi Henan

Anhui

Jiangxi

Guizhou

Hunan

Shanxi

Hebei

Liaoning

Jilin

0 to 4.49

4.50 to 6.39

6.40 and above

Hubei

Gansu

Inner Mongolia

Beijing