Private pensions

Interview with Prof Zheng Bing Wen, from the Chinese Academy of Social Sciences, on the development of private pensions in China

 

In this interview, Prof Zheng, a renowned Chinese expert on pensions, discusses the necessary reforms – in particular tax reforms – that are needed in order to further develop private pensions in China. The enterprise annuity system, as the private pension system in China is called, should become a key part of the retirement income system, but there are some obstacles that needs to be addressed first.

 

Transcript

 

Juan YERMO : What are main challenges for the growth of the enterprise annuity (EA) system in China? What do you think are the main policy challenges faced by the system and why is it not growing at the speed that was originally expected? 


Prof. ZHENG:  企业年金2010年正好建立20周年,企业年金税优10周年。但是企业年金发展非常滞后。中国企业年金缴费人1000万。资产260万亿人民币,非常小。职工参与率1%,占退休金替代率的1%,这个比例在OECD 国家是找不到的。

Prof. ZHENG: This year is the 20th aniversary of the Chinese enterprise annuity system establishment. Preferential tax policy was introduced 10 years ago. However, the development of EAs is lagging behind: Only 10 million Chinese has joined such plans. The total assets in the system is 260 trillion Yuan, which is very much underestimated: The economic active employee participation rate is merely 1%, and the average replacement rate is  only 1%, and the employer participation rate is also around 1%.  Such low ratio cannot be found in the OECD countries.


导致企业年金发展滞后的原因有很多, 其中最主要的原因是税优政策不到位。目前的税优政策企业缴费部分是TEE,个人缴费部分没有这政策。学术界和政策界建议个人缴费部分采取EET的形势。但由于中国的税制问题。EET多年也没有出台。

There are many reasons that explain the slow development of EAs. The main reason lacks in the  preferential tax treatment of employee individual income. The current tax regime applying to EA plans is TEE.  Academic and policy makers suggest that we should adopt EET (exempt-exempt-tax) in terms of individual contributions. However, EET has not been introduced for many years due to China's specific taxation system.

 

有两个主要的困难:
首先中国个人所得税制是分类所得税制而非综合所得税制。从1994年就开始张罗进行改革,但是改革的步伐很小。在这种情况下,如果企业年金是后端征税,必须要把它列入个人所得税法当中作为举例。这个举措非常艰难,即使放入税法,那么其他类型的养老金应该怎么办。所以如果采取EET形式,与中国目前的个人所得税法相冲突。

There are two main difficulties:
First, China's personal income tax system is Classified income tax system rather than a tax on aggregate income. Income tax reform started from 1994 at a very low pace. In this case, if enterprise annuity is taxed, it must be included into personal income tax law as a special case, which is very difficult. Even if the tax on annuity is put into the tax laws. What should we do with other types of pensions ? So EET is conflict with China's current personal income tax system.

 

其次与中国的传统儒家文化相冲突,中国所有的退休收入都采取EEE形式,后端不征税。例如基本养老保险的第一部分 :社会统筹部分是不缴税的,账户部分也不缴税,这采取的是EEE. 如果企业年金对个人缴费部分缴税,则与中国的社会文化相冲突。由于中国老年人收入很少,如果后端缴费,则社会舆论难以承受。

Second, the EET is conflict with the traditional Chinese Confucian culture. All the retirement income in China is EEE . For example, the first pillar of pensions is the basic pension, it adopts EEE. Since senior people’s income is modest in China, public opinion will not accept the fact that pension benefit is taxed.


所以EET长期看是个好主意,但是需要个人所得税制进行改革,从分类所得税制相混合所得税制方向进行转型,既有分项,又有综合。2008年个人所得税制进行了一些改革,年收入超过12万人民币的年终应当主动到地方税务局申报,虽然已经缴税,还是要进行申报登记,这就是从分项所得税制到综合所得税制的一个转型尝试。但申报的人不多。所以EET的改革,依赖于个人所得税制的改革。所以目前企业年金关于个人缴税部分是模糊的。

Therefore, EET is a good idea in long term with the premise that the reform of personal income tax system from Classified Income tax system to Mixed Income tax system which include both the classified and aggregated system. From 2008, people should declare their total incomes if it is more than 120000 Yuan per year. This is an attempt of income tax system reform. However, very few people declared their total incomes. Therefore, the reform of EET depends on the individual income tax system reform. It also explains  why contribution from individual to annuity is still not very clear.

 

在个人所得税制改革前的过渡时期,我们可以采取过渡性的办法,我个人设计的制度是partial TEE. 在个人缴费部分的前端进行分类别缴税。由个人自行选择类别,每一个类别都是税优政策和交税的绑定(combination),对于国家,个人和企业来讲都有积极性。这个办法如果采取的话就可以解决制约企业年金发展的主要问题。

In the transitional period before the reform, we may use a transitional approach. My idea is to use a partial TEE:  the systerm is composed of several categories(five grades), Individuals choose a certain grade, each grade is a combination of income taxe rate and preferential tax rate for annuity contribution.  Thereafter, the state, individuals and enterprises are all motivated.  This approch helps resolve the main problem that constrains the development of annuity and to cushion the conflicts among these ministries who share differenct views upon this subject.

 

2004年发布企业年金第20号令和23号令,当时企业年金资产仅有493亿人民币,六年以后2500亿,这个发展速度非常慢!远远落后于处于同一起跑线的东欧国家。如果企业年金发展不起来,则多层次社会保障制度很难建立起来,所以中国的压力非常大。金融危机后大家发现内部消费拉动不起来,这个对于社会保障的语气不明确有关系。

In 2004, following the orders NO. 20 and No.23 issued by the Ministry of Human Resources and Social Security of P.R. China, the total assets of annuity was 49.3 billion yuan and 6 years later it became 250 billion yuan. This development was very slow. It is far behind the eastern european countries which were at the same starting line as China. If the annuity system does not develop, it will be difficult to achieve a multi-pillar social security system in China. We are facing high pressure. What is more, in the post financial crisis days, we realized that one main reason of weak domestic demand is the uncertainty over social security benefits in China.

 

 

 

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