The Chinese pension system is multi-layered. The first layer consists of several public pension schemes, some mandatory (Basic Old Age Insurance and Public Employee Pension) and some voluntary (Urban Resident Pension and New Rural Resident Pension). These public pension schemes aim to provide basic social security to all residents when they reach old age, regardless of whether they were employed. The second layer consists of employer-sponsored annuity programs, which employers voluntarily provide as a supplement to the public pension schemes. The third layer consists of household savings-based annuity insurance policies. The public pension schemes of the first layer receive substantial direct fiscal subsidies from the government, while all schemes or products regardless of layer receive tax preferences.
As of the end of 2017, Chinese public pension schemes had more than 915 million participants (accounting for 65.8% of the total population), and the total public pension expenditure was 4,032 billion RMB, about 5% of China’s GDP. Unlike the broad coverage of the first layer, participation in the second layer is much more limited; only about 80 thousand firms, accounting for less than 0.5% of all the firms in China, offered employer-sponsored annuity programs to 23.3 million employees in 2017.1 The third layer is still in its infancy.
– National Bureau of Economic Research