People's Republic of China

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Basic Old Age Pension Insurance Scheme for Employees

职工基本养老保险

Coverage

Mandatory insurance

Enterprise employees (职工).¹

Voluntary insurance

Self-employed persons registered as ‘individual industrial and commercial households’² without employees, part-time employees not participating in the scheme through their employers, and other persons in flexible employment (灵活就业人员).

Financing

General finances

Combined financing mechanism consisting of tax- and PAYG-financed ‘social pooling fund’ and capital-funded individual accounts.
Social pooling fund: mainly PAYG-financed from insurance contributions of employers/persons in flexible employment; partly tax-financed out of the general budget.
Notional individual accounts: capital-funded based on contribution payments of employees/persons in flexible employment (incl. capital revenues).

Contribution rates to mandatory insurance

Employers’ contribution: a maximum of 20% of the total sum of wages paid by employers to their employees are credited to the ‘social pooling fund’ (exception: in provinces with large number of retirees, the employers’ contribution rate can exceed 20%).⁵
Employees’ contribution: fixed share of monthly wage (8%) credited to individual accounts with contribution assessment floor and ceiling (60% and 300% of the average monthly wage of the local employees).

Contribution rates to voluntary insurance

Fixed share of the average wage of the local employees in the previous year (20%, of which 8% are credited to individual account).

Taxation of contribution payments

All contributions are 100% tax-exempt.

Administration

The local social insurance authorities and their executive bodies, i.e. ‘the Local Social Insurance Enforcement Agencies’ (社会保险经办机构) manage the scheme.
The provincial governments determine the contribution rate for the employer. In some provinces with a large number of retirees and high pension insurance burdens, the contribution rate for the employer can exceed 20%; in this case, the provincial governments shall report to the ‘Ministry of Labour’ and the ‘Ministry of Finance’ for approval.

Qualifying Conditions

Qualifying conditions

Statutory retirement age is 60 for men, 50 for female workers, and 55 for female cadres⁴; minimum insurance periods: 15 years (in case of missing insurance periods, persons can retire at a later age once the 15 years of insurance have been achieved).⁵
Special conditions apply to: employees working in burdensome and hazardous conditions (e.g. underground, in high altitude, in high temperatures; statutory retirement age is 55 for men and 45 for women); employees with total work incapacity (statutory retirement age is 55 for men and 45 for women); cadres who have completely lost the ability to work (statutory retirement age is 50 for men and 45 for women).

Early retirement

No option of early retirement.

Deferred retirement

No option of deferring retirement.

Combining employment & retirement

Receiving pension benefits requires termination of employment.

Benefits

Pension benefits

The pension benefits consist of two components: the earnings-related pension of the social pooling fund and the individual account pension.
Social pooling fund pension: primarily based on the amount of contributory earnings throughout working career and the local average wage.
Individual account pension: primarily based on the accumulated capital through contribution payments and investment yields and expected payment period.
No specification in law regarding fixed minimum and maximum amount of pension benefits.

Factors for benefit calculation

Social pooling fund pension

Based on the average of the average monthly wage of the local employees in the previous year and the ‘indexed average monthly wage’ of the insured person, 1% of this amount is paid for each year of the employee’s contribution payment.
Pension formula: (average monthly wage of local employees in the previous year + indexed average monthly wage of the insured employee) / 2 × the number of years of contribution payment × 1%.
Indexed average monthly wage of the insured employee: average monthly wage of local employees in the previous year × average monthly wage index.
Average monthly wage index: (a1 / A1 + a2 / A2 + ... + an / An) / N. (‘a’ representing the amount of the employee's monthly wages in the year ‘n’ before retirement; ‘A’ representing the amount of the average wage of local employees in the year ‘n’ before retirement; ‘N’ is the total number of years of contribution payment).

Individual account pension

Monthly life-long annuity based on dividing the capital accumulated via contribution payments and investment yields by the ‘number of months of payments’, determined by factors such as the average life expectancy of the urban population at the time of retirement, the retirement age of the insured person and the interest.⁶

Adjustments

Adjustment of old age pension value for both pension components accounts for changes in the average wages of employees and price increases.

Taxation and social security contributions

Pension benefits are not subject to income tax.
Information on social security contributions is currently not available.

Coverage

Financing

Administration

Qualifying Conditions

Benefits

Mandatory insurance

Enterprise employees (职工).¹

Voluntary insurance

Self-employed persons registered as ‘individual industrial and commercial households’² without employees, part-time employees not participating in the scheme through their employers, and other persons in flexible employment (灵活就业人员).

General finances

Combined financing mechanism consisting of tax- and PAYG-financed ‘social pooling fund’ and capital-funded individual accounts.
Social pooling fund: mainly PAYG-financed from insurance contributions of employers/persons in flexible employment; partly tax-financed out of the general budget.
Notional individual accounts: capital-funded based on contribution payments of employees/persons in flexible employment (incl. capital revenues).

Contribution rates to mandatory insurance

Employers’ contribution: a maximum of 20% of the total sum of wages paid by employers to their employees are credited to the ‘social pooling fund’ (exception: in provinces with large number of retirees, the employers’ contribution rate can exceed 20%).⁵
Employees’ contribution: fixed share of monthly wage (8%) credited to individual accounts with contribution assessment floor and ceiling (60% and 300% of the average monthly wage of the local employees).

Contribution rates to voluntary insurance

Fixed share of the average wage of the local employees in the previous year (20%, of which 8% are credited to individual account).

Taxation of contribution payments

All contributions are 100% tax-exempt.

The local social insurance authorities and their executive bodies, i.e. ‘the Local Social Insurance Enforcement Agencies’ (社会保险经办机构) manage the scheme.
The provincial governments determine the contribution rate for the employer. In some provinces with a large number of retirees and high pension insurance burdens, the contribution rate for the employer can exceed 20%; in this case, the provincial governments shall report to the ‘Ministry of Labour’ and the ‘Ministry of Finance’ for approval.

Qualifying conditions

Statutory retirement age is 60 for men, 50 for female workers, and 55 for female cadres⁴; minimum insurance periods: 15 years (in case of missing insurance periods, persons can retire at a later age once the 15 years of insurance have been achieved).⁵
Special conditions apply to: employees working in burdensome and hazardous conditions (e.g. underground, in high altitude, in high temperatures; statutory retirement age is 55 for men and 45 for women); employees with total work incapacity (statutory retirement age is 55 for men and 45 for women); cadres who have completely lost the ability to work (statutory retirement age is 50 for men and 45 for women).

Early retirement

No option of early retirement.

Deferred retirement

No option of deferring retirement.

Combining employment & retirement

Receiving pension benefits requires termination of employment.

Pension benefits

The pension benefits consist of two components: the earnings-related pension of the social pooling fund and the individual account pension.
Social pooling fund pension: primarily based on the amount of contributory earnings throughout working career and the local average wage.
Individual account pension: primarily based on the accumulated capital through contribution payments and investment yields and expected payment period.
No specification in law regarding fixed minimum and maximum amount of pension benefits.

Factors for benefit calculation

Social pooling fund pension

Based on the average of the average monthly wage of the local employees in the previous year and the ‘indexed average monthly wage’ of the insured person, 1% of this amount is paid for each year of the employee’s contribution payment.
Pension formula: (average monthly wage of local employees in the previous year + indexed average monthly wage of the insured employee) / 2 × the number of years of contribution payment × 1%.
Indexed average monthly wage of the insured employee: average monthly wage of local employees in the previous year × average monthly wage index.
Average monthly wage index: (a1 / A1 + a2 / A2 + ... + an / An) / N. (‘a’ representing the amount of the employee's monthly wages in the year ‘n’ before retirement; ‘A’ representing the amount of the average wage of local employees in the year ‘n’ before retirement; ‘N’ is the total number of years of contribution payment).

Individual account pension

Monthly life-long annuity based on dividing the capital accumulated via contribution payments and investment yields by the ‘number of months of payments’, determined by factors such as the average life expectancy of the urban population at the time of retirement, the retirement age of the insured person and the interest.⁶

Adjustments

Adjustment of old age pension value for both pension components accounts for changes in the average wages of employees and price increases.

Taxation and social security contributions

Pension benefits are not subject to income tax.
Information on social security contributions is currently not available.

¹ An enterprise employee is not legally defined in Chinese social law. In practice, it refers to any person who has a ‘labour relationship’ (劳动关系) with an employer.

² According to the legal definition of § 54 Para. 1 Civil Code PRC, an individual industrial and commercial household is a natural person conducting industrial and commercial operations upon registration in accordance with the law.

³ Since 01/05/2019 the contribution rate of the employer can be reduced to 16%; provinces with employers’ contribution rates below 16% must also propose transitional measures to reduce the financial burden of the employer. The adjustment of the contribution rate or the transition plan shall be reported to the Ministry of Human Resources and Social Security and the Ministry of Finance for record.

⁴ The division of cadres (干部) and workers (工人) was initially used for the internal management of the Communist Party of China (CPC) and continues to be used in some public institutions in China. At present, there are three main ways to obtain cadre status: (1) passing the entrance examinations of secondary or higher educational institutions, (2) passing public examinations of all levels of government to be hired, or (3) being promoted in the army to a position above platoon leader.

⁵ Persons who had participated in the scheme before the entry-into-force of the Social Insurance Law (01/07/2011) may pay contributions on a lump sum basis to attain 15 years insurance if they have been continuously paying contributions for 5 years after reaching the statutory retirement age.

⁶ The ‘number of months of payment’ for different retirement ages is now specified in a table formulated by the State Council.

Legal Basis: Social Insurance Law of the People's Republic of China (中华人民共和国社会保险法); Individual Income Tax Law of the People’s Republic of China (中华人民共和国个人所得税法); Regulation on the Implementation of the Enterprise Income Tax Law of the People's Republic of China (中华人民共和国企业所得税法实施条例); Several Provisions on Implementing the Social Insurance Law of the People's Republic of China (实施《中华人民共和国社会保险法》若干规定); Decision of the State Council on Establishing a Unified Basic Old Age Pension Insurance System for Enterprise Employees (国务院关于建立统一的企业职工基本养老保险制度的决定), 国发[1997]26号; Decision of the State Council on Improving the Basic Old Age Pension Insurance System for Enterprise Employees (国务院关于完善企业职工基本养老保险制度的决定), 国发[2005]38号; Notice of the General Office of the Ministry of Labour on Printing and Distributing the ‘ Interim Measures for the Administration of Individual Accounts for Basic Old Age Pension Insurance for Employees’ (劳动部办公厅关于印发《职工基本养老保险个人帐户管理暂行办法》的通知), 劳办发[1997]116号; Notice of the General Office of the State Council on Issuing the Comprehensive Plan of Reducing Social Insurance Contribution Rates (国务院办公厅关于印发降低社会保险费率综合方案的通知), 国办发[2019]13号; Interim Measures of the State Council on the Retirement and Resignation of Workers (国务院关于工人退休、退职的暂行办法), 国发[1978]104号; Interim Measures of the State Council on the Placement of Old, Weak, Sick and Disabled Cadres (国务院关于安置老弱病残干部的暂行办法), 24/05/1978.