New document released to improve China’s endowment insurance system

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The Ministry of Human Resources and Social Security and the Ministry of Finance recently released the “Guiding Opinions on Establishing a Mechanism on the Benefit Determination of Basic Endowment Insurance for Urban and Rural Residents and on the Normal Adjustment of Basic Pensions” (hereinafter referred to as the “Opinions”), which is estimated to be of relevance to 500 million urban and rural residents.

As an important part of China’s basic old-age insurance system, the basic endowment insurance system for urban and rural residents was established in February 2014, and was included in the new social endowment insurance system for rural and urban residents. As of the end of December 2017, the number of people participating in the endowment insurance for urban and rural residents was 512.55 million, of which 159.98 million people were receiving pensions. The monthly average pension per person was 125 yuan, and the basic pension was 113 yuan. 

However, as far as the current situation is concerned, how to rationally improve pensions for urban and rural residents and safeguard their lives has become a focus of concern.

It is understood that old-age insurance for urban and rural residents consists of basic pensions and personal account pensions. The “Opinions” proposes that the central government should reasonably determine the minimum national basic pension standards based on factors such as the per capita disposable income and the financial status of urban and rural residents across the country; local governments should increase basic pension standards, which should work in the favour of the elderly residents aged 65 and above in urban and rural areas according to local conditions .

In addition, the “Opinions” makes it clear that a normal adjustment mechanism for basic pensions will also be established, which means that the adjustment of basic pensions for urban and rural residents will be normalized. At present, the national minimum standard for urban and rural residents’ basic pension is 70 yuan per month. This standard was reached on the basis of the previous minimum of 55 yuan in 2015.

To this end, the Ministry of Human Resources and Social Security and Ministry of Finance referred to the adjustment of other social welfare standards, such as income growth of urban and rural residents, changes in prices, and basic old-age insurance for employees, and then suggested the adjustment in the minimum standard for the basic pensions of urban and rural residents.

The “Opinions” reiterates that local governments must reasonably determine and adjust the basic old-age insurance payment standards for both urban and rural residents. The maximum payment standard should in principle not exceed the amount of basic old-age insurance annual payment for local “flexible employees” (灵活就业人员); for severely disabled people or groups that have difficulties in paying the insurance, the current minimum payment standards can be retained.

Local governments must also establish a dynamic adjustment mechanism for payment subsidies, and adjust the level of payment subsidies in light of economic development, improvement of individual payment standards, and financial conditions.