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Transparency key for China's pension system-expert
2007-01-04
BEIJING - China must vastly improve the transparency of its scandal-tainted pension regime if it is to inspire faith in its ability to provide for its ageing population, a leading pensions expert said on Thursday. A scandal involving misuse of social security funds in China's financial hub of Shanghai last year underscored the need for Beijing to shore up governance standards as it races to build a viable pension regime, said Stuart Leckie, head of Hong Kong-based consultancy Stirling Finance. Local governments needed to begin disclosing the amounts of funds being poured into China's state pension coffers as well as the way the money is invested, as part of a wider push for sound governance, he told reporters. "This is exactly what China must do, but it is not easy to get from where they are today to this perfect situation of total disclosure in the provinces," said Leckie, who has advised the mainland and Hong Kong governments on pension reform. "That is where we will have to end up if people are to have faith in the pension promise." In the case of Shanghai, where former Communist Party chief Chen Liangyu was dramatically dismissed in September, the authorities forced some firms to pay extra contributions to state pension schemes in the 1990s and earlier this decade, he said. Leckie said that practice had also existed in some other Chinese cities despite it flouting national regulations. Instead of pouring the supplementary funds into bank deposits and bonds, some cash from Shanghai was directed towards cheap loans to well-connected real estate developers, he said. Revelations of abuses in Shanghai were likely to lead to improved supervision and transparency of pension funds both in the public and private sectors, he said. China, which has been reforming its urban pension system over the past two decades, has opted for a multi-pillar system based on state schemes -- which take contributions from employers and employees -- voluntary corporate annuities and alternative pension plans. While China had made significant progress in recent years, more needed to be done if the country was to close the gap between its funding needs and pension liabilities, he said. The World Bank has estimated that China has promised pensioners $1.6 trillion more than it has set aside. China currently had sufficient funds to cover around 4 percent of its pension needs and needed to improve investment returns and implementation of pension reforms. "If, let's say, by the year 2030 China has a 50 percent funded system, I would say that would be good," Leckie said. "If it is only 5 percent funded by the year 2030, that's going to be very serious in terms of pensions which will have to be reduced, or taxes and contributions which will have to go up." Fuelling the urgency were projected changes in China's ratio of workers to retirees which would fall to two to one in the future from roughly six to one now partly as a result of the country's one-child policy, which is enforced in urban areas, Leckie said. China was adopting the right approach by tackling urban pension issues before turning to the more complex task of catering for the countryside, home to around 60 percent of the population, as well as migrant workers, he said.
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