China To Subsidizes State Pension Shortfall Following Economic Slowdown

China is planning to roll out measures to raise its subsidies to counteract the deficit in its state pension fund. The increase in the country's aging population and reduction in contributions collected has placed added pressure on state pension funds. Experts have also pointed out that the deeper economic slowdown could poke more holes in the country's retirement fund in the coming years.

According to the country's finance ministry, the cumulative balance in the state, pension stood at around 5 trillion yuan, or roughly $712 billion, at the end of 2019. Meanwhile, employers' contributions fell short by about 417.4 billion yuan. Vice finance minister, Yu Weiping, stated that the government has been forced to raise subsidies for this year in order to ensure the timely disbursement of pensions to retirees.

The deficit in the employers' contributions last year was mainly due to a measure that was rolled out to ease the burden on companies hard hit by the recent economic slowdown. Premier Li Keqiang officially cut employers' contribution rate last year from 20 percent to 16 percent. According to the government, the measure was necessary to help companies cope with the continued economic challenges in China.

Experts have stated that the country's retirement system is now close to becoming unsustainable given the worsening aging demographic. As it worsens, the government will likely be forced to raise the country's retirement age, a move that would undoubtedly be very unpopular.

In China, the statutory retirement age is around 50 for women and 60 for men. The average life expectancy in the country is around 77 years old, based on United Nations statistics. However, some have pointed out that there are a lot of citizens that are living way beyond 77 years of age, with some reaching 100.

China's aging demographic is accelerating at a much faster pace when compared to other low to middle-income countries. People over the age of 60 are expected to account for about 28 percent of the population by 2040. This is a significant jump from the 12.4 percent recorded in 2010.

According to a projection made by the World Economic Forum, the country's pension deficit could reach as high as $119 trillion by 2050. The current ratio of five working citizens supporting one retiree is expected to decrease to two working citizens per retiree by 2050.

The Chinese government did acknowledge the issue and had revealed that it has a five-point strategy to manage its aging population. The strategy was unveiled through a policy paper jointly issued by the State Council and the Communist Party's Central Committee.

Part of the plan will be to establish a private individual retirement savings system, where workers can save for their own retirement through private systems that invests in stock and bonds. As of last year, a total of 64 funds have been established.