China has a two component pension system, consisting of a defined benefit earnings-related pension and a mandatory defined contribution scheme. It covers urban workers and many of the parameters depend on province-wide (rather than national) average earnings.
Pensions at a Glance Asia/Pacific 2018
Report
Pensions at a Glance Asia/Pacific
Table of contents
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China
China: Pension system in 2016
Key indicators: China
|
China |
OECD |
||
|---|---|---|---|
|
Average earnings |
CNY |
67 569 |
254 329 |
|
|
USD |
9 730 |
36 622 |
|
Public pension spending |
% of GDP |
4.3 |
8.2 |
|
Life expectancy |
at birth |
76.5 |
80.9 |
|
|
at age 65 |
16.1 |
19.7 |
|
Population over age 65 |
% of working- age population |
13.3 |
23.4 |
Qualifying conditions
Normal pension age is 60 years for men, 50 years for blue collar women and 55 years for white collar women.
Benefit calculation
Earnings-related
The pension pays 1% of the average of the indexed individual wage and the province-wide average earnings for each year of coverage, subject to a minimum of 15 years of contributions. The pension in payment is indexed to a mix of wages and prices, which has been about 6% in recent years. The modelling assumes 50% indexation to wages.
Defined contribution (funded or notional accounts)
The second system comprises individual accounts. In addition to the north-eastern provinces (Liaoning, Jilin and Heilongjiang), a further eight have funded individual account systems. In other cases, the accounts are largely notional and are credited with a notional interest rate.
Employees pay 8% of wages to the individual account system. The accumulated balance in the fund or the notional account is converted into a stream of pension payments at the time of retirement by dividing the balance by a government-determined annuity factor, depending on individual retirement age and average national life expectancy. In all provinces, these annuity factors, for both males and females, (for monthly benefits) are:
|
Age |
40 |
45 |
50 |
55 |
60 |
65 |
70 |
|---|---|---|---|---|---|---|---|
|
Factor |
233 |
216 |
195 |
170 |
139 |
101 |
56 |
Variant careers
Early retirement
It is possible to claim a pension benefit from the age of 55 years for men and 50 years for women if the individual engaged in physical work in certain industries or posts.
Late retirement
It is possible to defer pension payments until after normal pension age, but the pension benefit is not valorised.
Personal income tax and social security contributions
Taxation of workers
There is a standard income-tax allowance of CNY 42 000. Employees are allowed to deduct social insurance and housing fund contributions to calculate taxable income.
Taxation of worker’s income
|
Grade |
Monthly taxable income |
Tax-rate (%) |
|---|---|---|
|
1 |
Less than CNY 1 500 |
3 |
|
2 |
The portion of income in excess of CNY 1 500 to CNY 4 500 |
10 |
|
3 |
The portion of income in excess of CNY 4 500 to CNY 9 000 |
20 |
|
4 |
The portion of income in excess of CNY 9 000 to CNY 35 000 |
25 |
|
5 |
The portion of income in excess of CNY 35 000 to CNY 55 000 |
30 |
|
6 |
The portion of income in excess of CNY 55 000 to CNY 80 000 |
35 |
|
7 |
The portion of income in excess of CNY 80 000 |
45 |
Note: “Monthly taxable income" mentioned in this schedule refers to the amount remaining from the gross income in a month after the deduction of CNY 3 500.
Social security contributions payable by workers
Under the revised system, employers contribute a maximum of 20% of earnings to cover the earnings-related pension. The second-tier pension is financed by an 8% contribution from employees. These contributions are capped at three times the local average wage. The social security contributions to individual accounts are exempt from income taxes.
Taxation of pensioners
There is no additional tax relief for pensioners.
Social security contributions payable by pensioners
Pensioners do not pay any social security contributions.
Pension modelling results: China in 2056 retirement at age 60 (men)
Assumptions: Real rate of return 3%, real earnings growth 1.25%, inflation 2%, and real discount rate 2%. All systems are modelled and indexed according to what is legislated. Transitional rules apply where relevant. DC conversion rate equal 90%. Labour market entry occurs at age 20 in 2016. Tax system latest available: 2016.