A large number of current retirees who began work before the pension scheme was introduced in 1997 have to depend on the state to contribute to their pension accounts. As a result, some less developed provinces have been transferring money from younger and middle-aged workers' individual accounts to pay for current retirees' pensions, causing a huge shortfall in individual pension accounts. Government officials told the China Daily last year that about 600 billion yuan from the accounts of today's workers has been used to pay current retirees' pensions.
Since the 1990s, China has gradually abandoned the cradle-to-grave welfare provided by the state, which in fact was paid by the working population. Before then, work units provided people with housing, medical care, kindergarten education and, ultimately, a retirement stipend. Replacing it is a new system that combines mutual-help social pensions with individual retirement accounts.
While current retirees don't have to worry about getting their pension, it is widely suspected that 20 years down the road, retirees will not get their promised pensions.
Because of the one-child policy and with more people living longer, the aging segment is claiming an ever larger proportion of the population. This means that fewer workers support more pensioners. Today the official retirement age for men is 60, for women 55. China has 134 million people aged 60 or older, accounting for 10% of the total population. By 2050, it is estimated that one in three Chinese will have reached retirement age.
Now China has three main ways of obtaining social-security funds: through government allocation, welfare lotteries, and investment funds. The government-managed funds have a low yearly yield of 3-4%. The Ministry of Finance, MLSS, and the People's Bank of China have approved investing pension funds overseas beginning May 1. The National Council for Social Security Fund is currently recruiting candidates to manage overseas funds. Corporations that have at least six years' asset management experience and have managed assets of not less than $5 billion qualify.