Rural pension reform in China: Lessons from within and beyond Latin America

Over the last two years, China has made great progress in pushing forward its rural pension program that is projected to cover 60% of rural areas by the end of 2011. Currently, China’s rural pension system has two components: the “basic pension” component financed by general revenue from central and local government and a voluntary funded individual account plan for rural participants. However, this new program faces challenges with respect to both the extension of pension coverage and the reduction of old age poverty. Our analysis looks at various social pension schemes within and beyond Latin America. Evidence from Brazil, Chile, Bolivia, South Africa, Namibia and Nepal is considered as part of our effort to draw lessons from pension models in other countries that may help improve the success of pension reforms efforts in China. The authors argue that China can afford to introduce a universal non-contributory social pension scheme. Relative to the model currently being introduced, our proposed alternative would be much easier implemented and would do more to reduce poverty in rural areas. To supplement the social pension benefits, a voluntary notional account plan in many ways similar to Sweden’s NDC model is proposed to replace the current funded account component of China’s current rural pension scheme.