Rural Pension Reform: What Can China Learn from Latin America?

Over the last five years, China has made substantial progress in developing its New Rural Pension System (NRPS). A major achievement has been the speed with which NRPS has been extended to all rural counties and to hundreds of millions of rural residents. The rapid expansion of this new program has been getting a great deal of international attention, particularly as a potential model for rural populations in other developing counties. However, it is also starting to become clear that NRPS is facing challenges, particularly with respect to benefit adequacy and future incentives for participation among younger workers. The primary goal of this article is to provide a critical review of what has already been achieved in China. We then consider some potential “lessons” for China based on related pension experience in several other countries, particularly those in Latin America. We conclude with a discussion of two promising reforms being discussed by some pension policy analysts seeking to improve the performance of NRPS in the years ahead. One is to transform the current contingent very modest social pension into a noncontingent and more generous social pension. The other is the replacement of the current voluntary funded defined contribution pillar with a voluntary matching defined contribution pay-as-you-go pillar.