China has three main public pension old-age benefits programs, covering three different groups of people. Urban areas have two old-age benefits programs—the Urban Employees’ Pension Program and the Urban Residents’ Pension Program. The Urban Employees’ Pension Program covers employed workers with rural or urban registration in urban areas. The Urban Residents’ Pension Program, started in 2011, is a voluntary program for people with urban registration who do not have a job. The National Rural Pension Scheme is a voluntary program for most people with rural registration. Smaller programs cover government workers, rural migrants to urban areas, and farmers who have had their land appropriated by the government.
4.2. Retirement Age for Public Pension Benefit Receipt
The retirement age for public pension benefit receipt is 60 for men. It is 60 for women working in certain professions, 55 for female managers, and 50 for other women, with most women having a retirement age of 50. Though retirement age is mandatory for most people, exceptions exist, including for some university professors. Retirement age is reduced for those working in hazardous occupations or who are seriously ill or disabled because of work. For those who have worked in hazardous occupation for a certain number of years and contributed to the public pension program for at least 15 years, the public pension benefit ages for males and females are 55 and 45. However, males can apply for public pension benefits at age 50 and females can do this at age 45, on the condition that they have contributed for at least 15 years.
As no specified and clear standard of hazardous occupations and disability are given, employers tend to help employees to apply for public pension benefits earlier to reduce their cost for older employees. Early retirement is quite common for both women and men [16
]. A study in 2006 reveals that among 17.6 million retirees, 10.0 million (56.8 percent) retired earlier than their normal retirement age [17
]. One study found an average retirement age in urban areas of 53 [18
4.4. Gender Pension Gap Caused by Program Regulations
In this section, we analyze causes of the gender pension gap by analyzing the historical development of pension benefit regulations. In a subsequent section, we analyze how the different labor market experiences of men and women interact with the pension benefit regulations to produce gender differences in benefits.
Analysis of the gender pension gap for current retirees in China is complicated by the changes that have occurred over time in the way that retirement benefits have been calculated. The gender pension benefits gap among retirees currently in China is related to the historical development of the urban public pension program. The benefits calculation differs for three cohorts of retirees: those retired before 1997, those retired between 1997 and 2005, and those retired after 2005.
Before 1997, retired workers received retirement benefits from their employers, with high replacement rates of 60 percent for 10 years of work, 70 percent for 15 years, and 75 percent for 20 or more years [18
]. In 1997, the Urban Employees’ Pension Program was first established in China, which is composed of a social account and an individual account. The contribution rates to the social account and individual account were adjusted several times and finally set at the current rates of 20 percent and 8 percent, respectively.
For workers who started to work before 1997 but retired between 1997 and 2005, the social account part of the Urban Employees’ Pension Program provided the same benefits for all retirees, regardless of number of years worked, the level of the worker’s earnings or the age at which the worker retired. During this period, the retirement benefits from the social account were calculated as 20 percent of the average wage for their area for the year prior to the employee’s retirement age. Personal contributions only affected the total amount in the individual account, which was divided by 120 to calculate individual account benefit, with the same divisor regardless of the age at which the person retired. In addition, during this period, a transitional benefit was paid for work before 1997. The transitional benefit takes into account years of work before 1997 and the worker’s earnings. For workers who started to work before 1997 but retired after 2005, their benefits are calculated according to the new system, explained in the next paragraph.
For those who started work after 1997, contribution level, contribution years and retirement age are taken into account to calculate retirement benefits. The basic benefit from the social account pension is calculated by multiplying the following two elements. The first element is a percentage determined by total contribution years, where one contribution year equals 1 percent. For instance, if a male worker contributed 35 years, he has a 35 percent coefficient in this part. The second element is a number obtained by adding the average wage of the year prior to the employee’s retirement age with the average indexed monthly wage of the employee and then dividing by two. The average wage used in this calculation is the average wage for the pooling area where the worker resides at the time of retirement. The average indexed monthly wage of the employee is adjusted for wage increases for every year before the person retires, and is thus wage indexed.
This benefit formula for workers who started work after 1997 can be analyzed for its effects on women vs. men. The first and second parts of the benefit calculation have different effects on women. Women receive lower benefits than men because they have fewer years of contributions, in part due to their lower retirement age (the first part of the calculation). However, the calculation of wages for determining benefits is advantageous to women relative to men because the use of the average wage for the region raises their benefits, while it lowers the benefits of men (the second part of the calculation). Women gain in the calculation of the average because men’s average wages are higher and because there are more men than women in the workforce, which also raises the average wage for the workforce relative to average wages for women.
Despite the boost that women receive in benefits from the averaging of wages with men, when both their years of work and their wages used for calculating benefits are lower than men’s, the benefit formula will tend to worsen the gender gap, or at least not improve it, because it is a multiplicative formula. For example, if their years of work were 80 percent those of men and the average wage used for calculating benefits was 90 percent that of men, the multiplication of those two factors would result in benefits that were 72 percent those of men, which is approximately the earnings gap. Retirees also receive a benefit based on the amount credited to their individual account from their contributions and accrued investment returns. The monthly benefit based on the individual account is the credited balance in the worker’s individual account balance at the time of retirement divided by 139, for both males and females retiring at age 60 (Table 2
). The divisor depends on the age at which the person collects benefits, but not on gender, with it being higher at lower ages. It is 195 for those retiring at age 50 and 170 for those retiring at age 55 in the urban pension system (Table 2
). Thus, women’s benefits are reduced by having a lower retirement age than men and fewer years to contribute to the individual account. The benefits for women are further reduced by having a higher divisor when calculating benefits from their individual account because of their younger age at retirement.
Retirement age, divisor of individual account for determining an annuity, and life expectancy after retirement [20
Retirement age, divisor of individual account for determining an annuity, and life expectancy after retirement .
|Retirement age||Divisor of individual account||Life expectancy after retirement (months)|
The individual account pension thus can also be analyzed for its effect on the benefits of women vs. men. The larger divisor for women than men in determining benefits from the mandatory individual account system is one of the factors causing women to have lower benefits than men. If women retired at age 60 instead of age 50, their benefits from the individual account system would be 40 percent larger, not taking into account the increase due to the added years of contributions and investment earnings, which would cause a further increase in their benefits.
Data are not available on the size of the benefits from the individual account pension. The contributions to these accounts of 8 percent are 29 percent of the total public pension contributions, when the total contribution rate is 28 percent. However, because these accounts are credited the low rates of return on bank accounts, the benefits from them are probably less than 29 percent of total benefits on average. They would be a smaller percentage of benefits for women than for men because the social benefit is more generous for women than men due to the use of the social average wage in the benefit computation, as explained above.
The benefit payment is not limited to the amount in the individual account, but is guaranteed by the government for life, and thus is paid as a life annuity. As shown in Table 2
, expected months of living for those who retire at age 50 are 416.4 months and 380.4 months for females and males, respectively. As is typical for public pension programs, the divisor for determining benefits is the same for men and women, thus providing greater lifetime benefits for women than men, because of their longer lifetimes, but equal annual benefits for a given account balance. If the person dies before receiving the full amount in their individual account, the spouse receives the remaining amount, then the children, if the spouse is not surviving. The system does not provide a benefit to a surviving spouse if the amount credited to the account has been paid in benefits. This arrangement is disadvantageous to women because they are more likely than men to be the survivor in a marriage.