China

China: Pension system in 2020

China has a two-tier pension system, consisting of a basic pension and a mandatory second-tier plan. It covers urban workers and many of the parameters depend on province-wide (rather than national) average earnings.

Key indicators: China
		China	OECD
Average worker earnings (AW)	CNY	79 854	276 988
	USD	11 295	39 178
Public pension spending	% of GDP		7.7
Life expectancy	at birth	78.2	80.2
	at age 65	17.7	19.1
Population over age 65	% of working- age population	19.7	30.2

Qualifying conditions

Normal pension age is 60 years for men, 50 years for blue collar women and 55 years for white collar women.

Benefit calculation

Basic

The basic pension pays 1% of the average of the indexed individual wage and the province-wide average earnings for each year of coverage, subject to a minimum of 15 years of contributions. The pension in payment is indexed to a mix of wages and prices, which has been about 6% in recent years. The modelling assumes 50% indexation to wages.

Defined contribution (funded or notional accounts)

Employees pay 8% of wages to the individual account system. The accumulated balance in the fund or the notional account is converted into a stream of pension payments at the time of retirement by dividing the balance by a government-determined annuity factor, depending on individual retirement age and average national life expectancy. In all provinces, these annuity factors, for both males and females, (for monthly benefits) are:

Age	40	45	50	55	60	65	70
Factor	233	216	195	170	139	101	56

The modelling results are based on a funded defined contribution system.

Variant careers

Early retirement

It is possible to claim a pension benefit from the age of 55 years for men and 45 years for women if the individual engaged in physical work in certain industries or posts.

Late retirement

It is possible to defer pension payments until after normal pension age, but the pension benefit is not valorised.

Personal income tax and social security contributions

Taxation of workers

There is a standard income-tax allowance of CNY 42 000. Employees are allowed to deduct social insurance and housing fund contributions to calculate taxable income.

Taxation of worker’s income

Individual Income Tax Rates (applicable to income from wages and salaries)
Annual taxable income	Tax-rate (%)
Less than CNY 36000	3
The portion of income in excess of CNY 36 000 to CNY 144000	10
The portion of income in excess of CNY 144 000 to CNY 300000	20
The portion of income in excess of CNY 300 000 to CNY 420 000	25
The portion of income in excess of CNY 420 000 to CNY 660 000	30
The portion of income in excess of CNY 660 000 to CNY 960 000	35
The portion of income in excess of CNY 960 000	45
Note: “Monthly taxable income” mentioned in this schedule refers to the amount remaining from the gross income in a month after the deduction of CNY 5 000.

Social security contributions payable by workers

Under the revised system, employers contribute a maximum of 16% of earnings to cover the basic pension. The second-tier pension is financed by an 8% contribution from employees. These contributions are capped at three times the local average wage. The social security contributions to individual accounts are exempt from income taxes.

Taxation of pensioners

There is no additional tax relief for pensioners.

Social security contributions payable by pensioners

Pensioners do not pay any social security contributions.

Pension modelling results: China in 2058 retirement at age 60 (men)

Note: Real rate of return 3%, real earnings growth 1.25%, inflation 2%, and real discount rate 2%. All systems are modelled and indexed according to what is legislated. Transitional rules apply where relevant. DC conversion rate equal 90%. Labour market entry occurs at age 22 in 2020. Tax system latest available: 2020.

Source: OECD pension model.

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