Pensions reformed and wages increased in Chinese public sector

BOFIT Viikkokatsaus / BOFIT Weekly Review 2015/05

The major reform of public sector pensions announced in January aims at unifying the pension schemes of public sector employees and workers in other sectors. Chinese public sector workers earlier were exempted from making pension contributions, while other workers had to pay 8 % of their wages to pension funds. Public sector contributions were paid out of the state budget.

The Financial Times reports that pensions of public sector employees are about 80–90 % of their wage income. Pensions in other sectors are typically about half of the wage. The decades-old double standard in the pension scheme was widely viewed as unfair and favouring state employees. The pension reform calls for a mandatory 8 % contribution from the wages of public sector workers. Public sector pensions will also be brought closer into line with the pension schemes of other workers by reducing the pension size relative to earned wages of future public sector retirees.

Along with the pension reform, officials announced substantial wage hikes for public sector workers. The increases affect China’s approximately 40 million public sector workers, as well as some 15 million retired civil servants. Wages of public sector employees were last reviewed in 2006. The new plan is to review public sector wage levels roughly every two years. The wage hikes are not only sufficient to cover the extra costs of the pension reform, but will increase the net wages of state workers. The move is intended to reduce the temptation of civil servants to take bribes and stimulate consumer spending.

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