China Fully Implements "Personal Pension" System, Suspected as "Legal Exploitation" to Address Pension Deficits

These elderly individuals stood in front of the meat stall for a long time but eventually walked away without buying anything. Such scenes of elderly people are common across China. Who will care for them? (Video screenshot)

[People News] On December 15, China officially rolled out a "personal pension" system, allowing individuals to deposit up to 12,000 yuan annually into accounts for investing in financial products as a supplement to the basic pension system. However, some citizens have likened the system to a "Ponzi scheme," arguing that amidst China’s sluggish economy and the deficits in existing medical and social insurance funds, the government is using "personal pensions" as a legal way to raise funds to fill its financial gaps, effectively "harvesting the people" in creative ways.

According to Voice of America, China’s Ministry of Human Resources and Social Security, Ministry of Finance, State Taxation Administration, National Financial Supervision and Administration, and the China Securities Regulatory Commission jointly issued a notice on December 12 announcing the nationwide implementation of the personal pension system starting December 15. The system had been piloted in 36 cities and regions, including Beijing, Tianjin, Shijiazhuang, and Xiong'an New Area, since November 2022.

The Chinese government positions personal pensions as the "third pillar" of the pension system, emphasizing its flexibility and market-driven approach. The first pillar is the basic pension insurance, which is the core of China’s retirement system, government-led, and mandatory for all urban employees and rural residents. The second pillar is occupational pensions, including enterprise and professional annuities, which are voluntary and mainly serve economically robust companies and public institutions.

Supplement to Basic Pension Insurance

According to official explanations, the personal pension system allows individuals to voluntarily deposit up to 12,000 yuan annually into designated accounts to purchase approved financial products. Upon reaching retirement age, individuals can access these funds as an additional pension source to supplement their basic pension insurance. The system also offers tax incentives, such as deferred taxation, where taxes are only levied when the funds are withdrawn.

To ensure the preservation and growth of personal pension funds, the investment options include existing financial products such as wealth management plans, savings deposits, commercial pension insurance, and public funds. Additionally, specialized pension savings and index funds have been added to the investment product catalog.

As of December 12, official statistics from People’s Daily show that personal pension investment products include 26 wealth management plans, 466 savings products, 165 insurance products, 200 public fund products, and 85 equity index funds—offering over 900 investment options for personal pensions.

According to China International Capital Corporation, assuming an average annual contribution of 6,000 yuan per person, the system could potentially collect 156.3 billion yuan in annual contributions.

Despite the official push, the system has yet to gain widespread trust, with many citizens questioning its true purpose. Critics have called it a "Ponzi scheme," while others declared, "Not a penny more will go to the state," or complained, "I can’t even afford basic pension contributions, let alone personal pensions."

Ah Liang, a resident of Guangdong, told Voice of America that he would never invest in personal pensions because China’s existing medical and social insurance systems are already running deficits. "I don’t trust this government. I think it’s just another ‘Ponzi scheme,’ using a new legal fundraising method to help the government plug its financial holes," he said.

Ah Liang pointed out that many local governments are already bankrupt due to unsold land, and personal pensions are just a new way for the government to "make money" and "harvest the people." Consequently, he avoids both medical and social insurance, opting instead for commercial insurance. "I wouldn’t be foolish enough to rely on the state for my retirement," he added.

Pension Deficit and Economic Struggles in China

China's pension deficit issue has been evident for years. In 2020, the China Insurance Association estimated that from 2025 to 2030, the pension deficit could range from 8 to 10 trillion yuan. A 2019 report by the Chinese Academy of Social Sciences, China Pension Actuarial Report 2019–2050, predicted that the basic pension fund for enterprise employees nationwide would be "depleted" by 2035. Even earlier, a 2012 research report by former Bank of China Chief Economist Cao Yuanzheng and Deutsche Bank Greater China Chief Economist Ma Jun suggested that China's pension deficit could have reached 18.3 trillion yuan by 2013. However, this report was quickly denied by the authorities.

While transparency in China’s financial data is widely questioned, the rapid rise in the elderly population and the continuous decline in birth rates make the growing pension payment crisis and fiscal pressures undeniable realities.

In October, the Ministry of Civil Affairs and the National Office for Aging released the 2023 National Report on Aging Development, which stated that as of the end of 2023, China had 296.97 million people aged 60 or above, accounting for 21.1% of the total population—far exceeding the United Nations' 7% threshold for an aging society. Among them, 216.76 million were aged 65 or above, making up 15.4% of the population, indicating that China has officially entered a "moderately aging society."

Conversely, the China Statistical Yearbook 2024 revealed that the birth rate in 2023 was only 6.39‰, with a natural population growth rate of -1.48‰. This decline has steepened over the past two years, from -0.6‰ to -1.48‰. Projections suggest that the elderly dependency ratio could rise to 36.3% in 2035, 53.5% in 2050, and peak at 87.5% by 2084. Population decline means fewer young people will be available to contribute to social security funds, worsening the pension crisis.

Distrust in Government

Fang Congyan, an assistant researcher at Taiwan's Institute for National Defense and Security Research, told Voice of America that public skepticism reflects deep concerns about government finances, and such worries are not unfounded. She noted that the purpose of personal pensions is clearly to fill the gap left by the first pillar of basic pension insurance. However, frequent protests over difficulties withdrawing bank deposits, unpaid government salaries, delayed pension payments, and hospital salary arrears highlight China's faltering economy and the resulting strain on public welfare systems.

"I wouldn't say the Chinese government deliberately designed the personal pension system to create a Ponzi scheme. It might not have that intention initially," Fang remarked. "But given the deteriorating fiscal situation, it’s understandable that people have such concerns."

Zhou Xiaozheng, a Chinese sociologist and former professor at Renmin University of China now living in the U.S., shared his personal experiences to highlight the trust crisis surrounding pensions. He revealed that his once-stable pension was abruptly halted due to political factors, exacerbating public doubts about pension reliability. Zhou, who taught at Renmin University for over 30 years before retiring more than a decade ago, initially received a pension of nearly 10,000 yuan monthly. However, three years ago, he received a call from the university informing him of his "dismissal," resulting in his pension being stopped. Zhou, known for expressing views critical of the government, remarked:

"They (the CCP) don’t have money now. What do they do without money? They keep deceiving people—harvesting them like crops. The CCP has been engaging in organized fraud since its inception 75 years ago. There’s no pension left, and there never really was one!"

Dormant Accounts and Economic Mismanagement

The pilot phase of China's personal pension program coincided with significant local government debt. According to the State Council's 2023 Government Debt Management Report, the official government debt exceeded 70 trillion yuan, with a legal debt-to-GDP ratio of 56.1%. However, many believe the actual figure is much higher. Poor fiscal health has directly impacted youth employment rates and pension enrollment rates.

Official data shows that as of the end of last year, the first pillar of China’s pension system had 1.066 billion participants, achieving a coverage rate of over 90%. However, the second and third pillars saw sharp drops, with only 31.44 million and 50 million participants, respectively. By December 2024, when the personal pension system was fully rolled out, the government claimed that the third pillar had reached 70 million participants.

Notably, most of these accounts remain "inactive," with users opening them solely for promotional incentives or gifts, rather than depositing funds for investment. On social media platform X, one user shared their experience of being pressured by bank employees to open a personal pension account. The employee explained that account holders would face no transfer limits, while those without such accounts could only withdraw a maximum of 5,000 yuan per day.

Bank Assessment Tasks and Challenges in Personal Pension Adoption

China's Yicai media reported on December 12 that as the personal pension system rolls out nationwide, banks have been assigned "assessment" tasks, launching a 100-day action plan to meet goals. A staff member from a state-owned bank's personal finance department revealed that employees are tasked with completing 20 to 30 account openings each by the end of Q1 next year.

Tian Jun, Vice President of Taikang Pension Insurance and Vice Chairman of the Chinese Social Insurance Association's Pension Branch, acknowledged three core challenges in the personal pension system: high account openings but low investment rates; a surplus of products with significant homogenization; and the need for proper asset allocation and risk management in pension products spanning insurance, funds, savings, and wealth management.

Fang Congyan shared similar observations. She pointed out that while the first pillar of China's pension system has a coverage rate exceeding 90%, the second pillar's coverage is just under 8%, and the third pillar remains very low. Many personal pension accounts are essentially "dormant accounts," highlighting insufficient attractiveness of the scheme.

Expert Opinions: Personal Pensions Cannot Address Fundamental Issues

Fang analyzed the situation, noting that wealthier individuals have access to a broader range of investment products and therefore do not need personal pensions. On the other hand, for low- and middle-income workers who might genuinely need this financial safety net, their already challenging financial situations make it difficult to set aside additional funds each month. This difficulty is compounded by the fact that personal pensions involve investment, which carries inherent risks, particularly in unfavorable market conditions, leading to potential losses. Although tax deductions are offered as incentives, these benefits do not apply to workers with low incomes who are not subject to taxation.

"I believe this is why, even now, the coverage rate of personal pensions remains low. Even if people open accounts, few actually deposit money into them," Fang said. "The structural appeal of the system is weak."

She added that with existing gaps in China's pension system, combined with an underperforming economy and a declining birthrate due to younger generations avoiding having children, it is foreseeable that the financial burden on pensions will only grow heavier, and the system's operations will face increasing difficulties.