Title: Social Welfare Reform
1Social Welfare Reform China
2Trends and Tensions
Urban Demand
Entitlement (??)
Rural Demand
New welfare Trends
Long-term Viability
Policy Reform
3in China
Principles of social security pension design
Potential Chinese gain from an investment-based
system
The current social security pension system in
China
Alternative options for the Chinese
defined-benefit plan
The transition path
4Entitlement
There have been signs of growing discontent at
the prospect of losing privileged insurance
benefits and services
The village with only minimal local government
welfare provisioning suggests three-staged
village response
- The most people believe that either the central
or the local state should be responsible for
providing the security provisioning to which they
believe they are entitled. - The village The city
- The dual challenge for Chinas government during
the 1990s - 1???????????
- 2??????
5Urban Demand
It is estimated that as many as 70 percent of the
urban population are not covered by any form of
social insurance and are employed outside
state-owned enterprises.
- ????1980s, provide all kinds of welfare service.
During the 1990s, two socio-economic trends - Non-public sectors
- State-owned enterprises
- To reduce the proportion of public sector work
force eligible for benefits in the future,
employees are increasingly placed on short-term
contracts which carry fewer benefits.
In an increasingly competitive market,
state-owned enterprises have been hampered in
their development by their responsibilities for
social welfare payments. At the same time, the
state has attempted to reduce or withdraw
subsidies and place enterprises on a
profit-loss basis.
6Rural Demand
- During the past 20 years coastal township and
village governments with profitable enterprises
have emulated city state-owned enterprises - Inland township and villages without enterprises
seldom have local revenues to add to minimal
levels of state welfare assistance. - Throughout Chinas townships and villages,
whether or not they have enterprises, rural
demand for social welfare has risen as both ole
and new sources of social welfare are
increasingly at risk.
7Policy Reform
- From the mid-1990s new pension reforms have had
three key objectives - To establish a society-wide system of
pension-fund mobilization and management which
takes over from the enterprises - To share the costs of pension insurance between
individuals as well as enterprises and the state - To move from a pay as you go system to some
form of partial accumulation
8Policy Reform
- A three-tiered system
- Compulsory pensions organized by the state which
are both basic and earnings-related. - 2. Supplementary occupational pensions which may
be optional or semi-compulsory - 3. Individual pension schemes which are entirely
voluntary.
9New welfare Trends
- The five trends of the reform programs of the
1990s - the growing separation of social welfare from its
pervious enterprise base - The decentralization of social welfare
provisioning - A diversification in delivery systems, shifting
responsibilities to markets and to non-government
organization - The establishment of non-profit organization is a
recent innovation. - The strengthening of informal community and
family self-provisioning.
10Long-term Viability
- Unsolved tensions
- Market competition and fiscal constrain
- Government and non-government organizations
- Individual and government
- Economy and welfare provision
11What about in China?
12Principles of social security pension design
- A unfunded pay-as-you-go (PAYGO) PENSION system.
- The rate of growth of aggregate real wages, is
the sum of the growth rate of the population and
the growth rate of productivity. - V???V??V?????
- Actual economies do have capital stocks, and the
marginal product of capital is greater than the
growth rate of aggregate wages.
13Principles of social security pension design
- The choice between a defined-benefit and a
defined-contribution system. - Defined-benefit based on a formula that
typically involves the number of years of work
and the past history of wages. - Defined-contribution employees, or their
employer or both, make contribution to individual
accounts during working years. - Conditional defined benefit system Individuals
have defined contribution accounts but annuity
provided but are also guaranteed a minimum amount
(a defined benefit).
14Potential Chinese gain from an investment-based
system
- ???????????????????????????????60????,??????20??
??? - ????????????,???????????????
- ???? V???V??V???
- (1.07)307.6
- In a funded system the revenue are
used to increase the nations capital stock. If
that additional capital earns a 12 rate of
return, each dollar saved at age 45 grows to 30
at age 75. - (1.12)3030
15Potential Chinese gain from an investment-based
system
- The transition from a PAYGO system to a funded
system. - ????during the transition to a funded system
the combination of the tax required to finance
existing benefits and the savings required to
fund future benefits would be double. - ????
- 1. The maximum additional cost to current
employees would be the 5 required to fund their
future retirement annuities. - 2. The tax rate 20 would gradually decline over
time during a transition as new retirees draw on
their funded individual accounts as a source of
retirement income.
16The current social security pension system in
China
- The real returns on government bonds and bank
deposits have been very low and in some recent
years have actually been negative. - So the government would then have to raise future
taxes to pay interest on these additional
government bonds. - As restrictions on investments are relaxed in the
future, these defined contribution accounts will
invest in non-government securities. Then, with a
higher rate of return, the same benefits can be
financed with a lower contribution rate, or the
same 10contribution rate can be used to obtain a
higher level of benefits.
17Alternative options for the Chinese
defined-benefit plan
- Modify this part of the pension system in either
of two - 1. Substituting a funded plan---base on
investments in existing government bonds or
non-government enterprise securities - 2. Conditional defined benefitfilling the gap
between the defined-contribution annuity and the
level of retirement income that is regarded as
acceptable. - The combined effect of both of these options
would be to reduce the required tax from the
projected 9 to less than 2 of earnings.
18The transition path
- PASTa PAYGO system of defined benefits linked to
the final wage and administered by the retirees
lifetime workplace. The retirement benefits were
paid by the workers enterprise without any
explicit pension fund or accounting reserves. - NOWState-owned enterprises must face a more
rigorous market test and are not supposed to
incur losses. Shift assets to entities
responsible for pension benefits, such a shift is
economically efficient only if it leads to the
best use of those resources among all the
politically feasible options.
19Gordon Whites conclusion
- Welfare reform has proven not only technically
complex and economically constrained but also
institutionally tangled, socially sensitive and
politically charged.
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