Bei Lu, John Piggott, and Bingwen Zheng
This paper discusses the potential expansion of the role of the Notional Defined Contribution paradigm in the ongoing reforms of retirement provision in China. China has remarkably high nominal retirement coverage of its population. At the same time, however, issues of sustainability, equity and governance are challenging and real. Further, while many broad policy guidelines are set by the central government, jurisdictions at other levels – provincial, city and sometimes even district – have major control over implementation, covering administration, benefit rates, and other important features of retirement policy.
Retirement policy and provision, under whatever approach or approaches that are adopted, are necessarily shaped by the labour market experience of fund members. In China, heterogeneity is dramatic across provinces, and between urban and rural settings, in development stage, cost of living, formalisation level, and other characteristics. Interestingly, we find that mature age life expectancy is remarkably uniform. The variation in life expectancy at 60 is less across provinces than it is between men and women nationally.
We conclude that while an increased presence of the NDC paradigm has the potential to increase aggregate welfare, especially in the large and active Urban Employee Pension Scheme (UEPS), sub-national heterogeneity limits the applicability of any universal pension system in China. In particular, some form of more traditional vesting may serve to enhance formal labour force participation, supporting China’s future growth.
