Op-Ed Contributors

Securing the future of workers

By Wang Yiqing (China Daily)
Updated: 2010-09-09 08:02

The dilemma of the current pension system is cause for worry, Zheng says. Given China's present economic situation, it's not a good idea to fully fund the personal accounts, because "the value of money in personal accounts will decline by the day, and the central government cannot do anything with the funds that local governments hold." The fully funded personal account, under such circumstances, "is an unwise choice". But an empty account is totally against the current system's design

Based on his long years of study in this field, Zheng says the "notional defined contribution" (NDC) system is best suited to China. NDC does away with the division between the social pooling program and personal account, and transforms them into something similar to a bank account. Under NDC, insured employees deposit 8 percent of their wages to the pension fund and the employers are compelled to pay 20 percent. The entire amount goes into the account. And a social security agency can take charge of the account only if it pledges to pay a high interest rate on the amount and pension to account holders after they retire.

This system can benefit individuals and the authorities both, Zheng says. At the individual level, people can earn high interest on the deposits. Since the NDC system is similar to the Public Provident Fund for Housing, in which employees deposit only 8 percent of their wages and have 28 percent accumulated in their accounts, most people are likely to favor it.

With public support, the NDC system can easily help the government upgrade the level of overall planning and build a huge funding pool. "NDC is in name fully-funded, the government can use the huge amount in the account to invest to offset the decline of the funds' purchasing power." Besides, NDC can help build a fair system in urban and rural areas both.

Zheng has studied the feasibility of this system because he believes "the viability of a system lies in its feasibility as well as its attraction". Considering the 8 percent annual growth rate of those insured for pension, and the 8 percent benchmark of the return rate on investment, Zheng has calculated that the system would become financially sound by 2070.

He concedes, however, that the system will face many obstacles from local interest groups.

But he is certain that it is a win-win system for the government and the people both.

(China Daily 09/09/2010 page9)