China pension fund gap to top 80 pct of 2011 GDP by 2050

BEIJING, Dec 13 (Reuters) - China is likely to accumulate a massive funding shortfall in its urban pension system by 2050 unless it raises its retirement ages and taps more state assets, according to a book published this month that takes an in-depth look at China’s finances.

The book titled “Research into China’s state balance sheet” is co-authored by Deutsche Bank chief China economist Ma Jun and Xiao Mingzhi, a researcher at Accenture, one of the world’s leading management consulting, technology and outsourcing companies.

They reckoned that by 2050 the funding shortfall will be equivalent to 83 percent of China’s gross domestic product in 2011. Though the book did not give an absolute figure for the size of the expected shortfall, China’s GDP was 47.16 trillion yuan ($7.5 trillion)in 2011.

“Under the baseline scenario, assuming there is no reform taken in the future, China’s pension system will encounter a big funding gap and will not be sustainable,” they wrote.

Their estimate covers pension accounts of both urban enterprise employees and civil servants in government and public institutions, a wider measure than Ma cited in earlier research published in June.

Back then, he estimated the funding gap for corporate pensioners alone at 75 percent of 2011 GDP.

The funding deficit would be even larger if pension obligations in China’s vast rural areas were included.

China has a multi-layer pension system, which covers 12 million retired employees from government and public institutions, 70 million corporate retirees and tens of millions of other rural and urban people above the age of 60.

But due to a swelling graying population and low efficiency in managing pension accounts, the Chinese government is under mounting pressure meeting its obligations to the elderly.

The current retirment age is 60 for men and 50 for women, though women working for government institutions retire at the age of 55.

As a result of the one-child policy, China has experienced an accelerated transition to an “aging society,” with the over-sixties last year making up 13.3 percent of the country’s 1.37 billion people.

Ma and Xiao recommended Beijing should raise the average retirement age for employees and transfer more state assets into the national pension fund to alleviate pressure on fiscal expenditure.

Their view echoes that of China Securities Regulatory Commission chairman Guo Shuqing, who advocates the government transfer a greater proportion of shares in listed state-owned firms to the state pension fund.

For an analysis on China’s pension fund system, please click on (Reporting by Aileen Wang and Lucy Hornby; Editing by Simon Cameron-Moore)