Should I like to join China’s retirement pension (social insurance) programme?

China’s retirement pension is a welfare programme, but not established because of it. It is created to prevent social unrest and maintain status-quo resource distribution, to prevent young cheap immigrant work force to stay in their working city after retirement, crowding in big cities and creating slums – their impoverished kids are then a source of social unrest. Many consider it a game against the government, with a play-to-win attitude. You may have to play the game. Even if it is set-up against you – for example you are an immigrant worker, and you are to lose – don’t give up, understand it and do the math well, you can still achieve less losses.

This article is only about retirement pension. Luckily other social insurance programmes are less complicated.

The proper question is not “must I pay the social insurance”. It’s mandantory for employers to bring their employee into the programme, by law. But many laws are designed to incriminate most companies while to pursuit a select few – often selected by political fashion or sacrificed in struggles. This, together with many other reasons, made everyone feeling fine about being a criminal, and “law-abiding” becomes a preference, rather than a requirement. So, the proper question is “should I like it”, not “must I do it”.

China’s retirement pension is designed on a simple principle: if you earn an average salary, when you retire, your monthly pension is a percentage of the salary equalling to your working years. If you work for 100 years before retirement, when you are retired, you will receive monthly pension the same amount of the salary. If you work for 50 years before retirement, your monthly pension is 50% of the monthly salary.

If there is a God and he has decided that human ought to live 22000 years, or a year’s span is half as much as it is now, this policy would benifit the Chinese a lot more! My other article explained the logic behind this Chinese supernature design.

In reality not so simple:


When your employer pays for your social insurance, they report an ‘argumented’ salary (社保缴纳基数, this word never have a fixed English translation) and pays 20% of it for retirement pension, and you pay 8% of it. Together 28% of your ‘argumented’ salary goes to the big pool of social insurance fund. (Some cities like Xiamen only require employer pay 14% instead of 20%)

This argumented salary is between 60% and 300% (upper limit not appliable to expats) of the city’s last years’s average. That means, if you earns 50% of the city’s salary, the amount of money your employer and you pay to the pool of social insurance fund is the same as if you earns 60% of the city’s salary. This social wellfare program benifits the very poor (salary below 60% of average) same amount as the poor (salary equals 60% of average), but it also takes the same amount of money from both groups. A better warefare program would take less or nothing from the very poor while still benifits them similiarly to the poor.

In calculating retirement pension, how much do you earn in your working years does not matter, what matters is how much you earn compare to other people: a percentage, which is used to calculate another percentage to be used for deciding your monthly retirement pension in relationship to others’ salary. Japan hasitated before devaluing YEN, worrying that the retired may proteste deteriorating living quality – This in theory would not happen in China with pension pegged to average salary.

Let’s say p₁ is the percentage your salary compares to the average, p₂ is the percentage your monthly retirement pension compares to average monthly salary, and y is the number of years you worked before retire, the formula is

p₂ = (p₁+100%)∕2 × y%

If you earn as much as 300% of the city’s average salay, and you worked 25 years before retirement, it calculates:

p₂ = (300%+100%)∕2 × 25% = 50%

It means, When you retire, your pension amounts to 50% of the average salary of your city. On a sidenote, your salary percentage, 300%, is not directly used. The percentage used is (300%+100%)∕2 = 200%, that is, your-salary-compared-to-average averaged by the average.

Sounds fair, so far? Not so, there are two Chinese peculiarities to factor in:


What one recieves after retirement is relative to the place of his/her HUKOU. Take me as an example. The HUKOU of the author of this article is Lanzhou – and the place of work of this author is Beijing. Lanzhou’s salary is constantly about 50% of Beijing’s. In reality the equation is: 200% × 25% × 50% = 25%. I am to be paid 25% of the salary of the city where I work, not 50% as I would expect.

One may argue that I can enjoy the same level of comfort with half income, if the city I live in generally have half income. It’s not true, because market goods are priced the same everywhere – Lanzhou people are simply poorer. A market survey would indeed find Lanzhou goods cheaper, but that is because we are supplied with the lower end products. The brands I buy in Beijing is unsalable here.

Although we are “poorer”, my hometown Lanzhou is the most populated city of the north-west geographical quarter of China, more populated than Brisbane. I am not a small-town boy. Others are even poorer. Legions of workers marched from small cities and towns to big cities to escape poverty. Even if they gets out of poverty, they are supposed to return to it after retirement. Their entrepreneurship is rewarded if they manage to transfer their HUKOU to a big city. The market price for Beijing HUKOU is recently ¥720,000 (117.5k USD). It is so expensive for reasons, and this is one of them. The rule makers intends youngesters spend their working life contributing to big cities, and not to “burden” big cities after retirement. In Huoying (霍营, means Cholera Camp in Chinese) for example, a neighbourhood in the north part of Beijing, you can find a whole neighbourhood with no elder at all – when the youngsters grow older, they will be replaced with new youngsters. A fairytale place. HOKOU is one of the many reasons to form this Youth Town.

Faked salary average

Take my hometown Lanzhou for example: the average salary of the province, one of the poorest province in China, according to Statistic Bureau, is ¥44109 for year 2013, that is ¥3675/mo. A blatant lie. The number should be near ¥2500/mo for its capital city Lanzhou, and, since I do not live outside the capital city, I don’t have common sense for provincial residents, but I am sure that they are much poorer. It’s safe to say statistics exaggerated salary two-fold at least.

If social insurance is run by a greedy company, they should have the incentive to exaggerate average salary when most people are paying, and to under-report average salary when most people are being paid. Now China has the highest percentage of working-age people in history, and we found salary to be exaggerated at least two fold. When I retire, being born at the height of one-child policy, I will face the most aged society China ever to experience, and I should expect average salary seriously underreported – suppose it will be the same communist party that runs China.

Working Years

The working years is calculated by the years you pay social insurance. The law requires that you must pay social insurance if you work (you also have to if you don’t work, read the Medial Insurance part).

But what if there are some working years in which your employer did not pay social insurance? It depends on if the years are before you join social insurance payment (date of first payment), or after. If it is before, you are treated as if you had not been working (forgiven). If it is after, you are either forgiven or punished depending on where your HOKOU is.

Missing years before joining are with impunity. This is easily explained: they want you to be in the programme, and if you don’t, yet, you should be encouraged to join, not be punished to join. Do you ever wonder why Microsoft Outlook have a huge data-import tool and almost non-existant data-export tool? You can opt-in, but you can’t opt-out.

If you have missing years after joining the programme, the policy vary from place to place, and HUKOU decides. If your HUKOU is in a city with deep pocket, you may be forgiven (the years you didn’t pay count towards jobless years); in other places, you or your employer have to pay up every missing year, plus a fine, 2‰ per day in the case of Jiangxi (73% yearly interest), before you can receive retirement pension – bribing through the system will be a cheaper choice than paying the fine. Again, which city are you in depends on your HUKOU. How do you know which city has deep pocket? Among the crowd working in big cities and paying social insurance to big cities, only a few have HUKOU in big cities; most others receive pension from small hometowns. Eventually and inevitably, big cities’ pension fund pool is richer per capita than small cities, and can afford to be generous. When a Chinese brags about his Shanghai HUKOU in his drunk, now you understand what he is so proud of.

You are in a good position if you have not joined the social insurance programme: you can decide when to join. If you start it, you probably will not be forgiven for stopping it. Next time when your employer proudly says he enlisted everybody in social insurance programme, you may protest: Hey, I didn’t agree to abide by the law!

Also, note that your employers have to pay you at least collectively 15 years in order for retirement pension to be valid – otherwise whatever paid under your name goes to the pension fund pool and not for you. If you retire before finishing 15 years payment, you can pretend that you did not retire, and employ yourself in order to go on paying your social insurance.

In general, be very careful on selecting which year to join the program, and value the opportunity to get HUKOU in big cities – the cheapest opportunity is when you buy a house, and now you see part of the reason behind the Chinese real-estate fever – even if overseas Chinese are not bound by HUKOU, they still consider that they do not belong until they have a house.

And the 8% personal pension account

In addition to the employer-paid social insurance above, you need to pay 8% of your salary to your personal retirement pension account. This part is designed to be given back to you in the same sum, after you retire, in addition to the above-mentioned retirement pension. This is absolutely a lose, factoring-in inflation, which is speculated to be between 5% to 15% yearly. You would end up with a few times more the money if you buy gold instead – because gold retains (not growing in) value. But you need to pay this in order for the employer-paid pension to be valid.

If you surrender your pension retirement, this 8% personal pension account money gets to you in cash. What your employer paid for your goes into pension fund pool for other people.

A case study: an average income worker

An average worker joins the programme 40 years old, since 2014, earns ¥3476 per month in Beijing – her salary is about the average by common sense, but is on the 60% of average defined by the Statistic Bureau, which states in average every worker in Beijing earend ¥69521 in 2013. In 2014, her employer pays ¥695.21/mo for her retirement.

It goes on like this for 15 years, until her retires 55 years old. She never managed to get Beijing HUKOU, and retired to live in her hometown in Gansu, but she is lucky enough to have a roof to spare her the renting. Gansu’s average salary in 2029 is unpredictable, we can look at if she retires today, to get an idea. Lanzhou’s average salary (exaggerated) in her retirement days is ¥3675/mo, the monthly retirement pension is:

(¥3675+¥3675×60%)∕2 × 15% = ¥441

With ¥441, she could eat the cheapst noodle (¥6) twice a day, and forgo suppers for healthy strolls, with no money left for cloths.

If we factor in salary exaggeration (at least 2 times by common sense), we should expect her to be able to eat one bow of noddle per day. She probably will starve, but more likely she has a son or daughter to support her. In short, she should not depend on the social insurance for survival.

In addition, in the 15 years she pays ¥278/mo in into her “8%” personal retirement pension account. A total of 278×12×15 = ¥50040 in her account balance. Since the retirement age is 60, the government expected her to live 170 months more, hence, she is paid monthly an additional ¥50040/170 = ¥294.35 – this time, we need to calculate inflation, because this “8%” is not related to average salary. If inflation is between 5% to 15% yearly, this future ¥294.35 would worth as much as ¥36.17 to ¥141.59 today, since the first day of her retirement – and that value gradualy reduces further. With ¥141.59 she could buy a jacket per month, but not enough for the central heating in winters. With ¥36.17 she will be frozen to death.

Now let’s suppose the ¥973.28 went to social insurance under her name for 180 months (15 years) is instead invested in Gold, since gold retains purchase power. She should be able to spend ¥1030.53 today’s-worth money per month for 170 months (180mo / 170 mo × ¥973.28). She is far better off with this money, even if we don’t factor in fake salary statstics. Instead of two bows of noddles, she will have three bows of noddles, and with the ¥670.53 left to pay for good cloths and central heating, plus some petty money. However, she will exaust her resource in 170 months.

Is it so bad?

It’s worse. Time-weekly has a good terse overview of the problems: poor investment performance of pension fund, corruption, social unrest against the police which ended up with confrontation between the special force police and workers: they don’t even mention population structure problem!

But there are “good” side too:

Let’s look at one similiar example: If you buy real-estate in China, it’s entitled to you for only 72 years, after that it belongs to the national government. Will the government take your house from your offsprings? Most likly not by force. Consider the difficulty to clear people out of houses they are born in: tear gas, stun guns, a wall of police shields, and fire extinguishers in case the house owner set his own house in fire. Expedient solution used now is more likely to be reused: convincing people to sell their property at lose, so that to demolish and rebuild – kill a few that is not convinced. Most likely, your offspring will sell it. For places with no rebuild plan, especially the suburbs left empty due to vacant space redundance by predicted population regression, your offsprings will will have your house, no one bothers them. That is, suppose communist party lives.

China’s government has a “least-promise” strategy, or “expectation management” in modern business jargon. They promise you little, but may not enforce it. I would bet that the ‘average incomg worker’ in the example will not starve, even if he doesn’t have offsprings to support him. There will be additional benifits bestow upon him. Ultimately the mete-and-dole policy is made to reduce and prevent social unrest, and the longevity of the ruling government. Letting people starve doesn’t help it. We have seen similiar polices betowed upon miniority groups, especially those who lost living resource (land) to industralization. However, he is still better off with his own retirement plans.


Chinese people are not able to receive retirement pension from the city where he worked. He receives it from where his HUKOU is. Expats do not have HUKOU, so from which city do they receive their pension?

I found no rules about it on the Internet. Even if I found one, I would not rely on it. Chinese rules are interpreted for local expedience. Foreigners are required to join Chinese social insurance only since last year. The expedience rule will form in 14 years, when the first group of expats retire with 15 years of good record.

If I may bet, I would bet that expats are paid retirement pension by the city he registers to retire, and that will be the city he holds a “residence permit”. But, since residence permit is only obtainable if you have a job, and usually valid for only one year, you should retire right after you prolonged your residence permit, to have a year’s time to struggle with authorities on getting your retirement pension payment started and verify that you receive the first pension payment. Pace it with your VISA too, because you will not have a visa to live in China if you do not have a job, and you don’t if you are retired. You are likely to receive pension outside of China with a bank account in China, if you receive it at all.

When expats plan retirement, remember that everything subjects to expedience, financial and political expedience. What was promised is subject to local expedience, including renege using nearly impossible onerous formality. Allow me to be cold realistic: The next 20 years’ expedience works to your disadvantage. Financially, our pension system was not planned with an aging society in mind. Politically, a centralized power need to paint foreigners black so that its people need a protector, and power is trending towards more-centralized side. If expats’ rights are hurt, there will not be a public outcry in China to press the government into atoning it.

At the time of writing, reports have it that most expats didn’t join, for good reasons:)


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