The Forbidden City’s Pension

Suggest some opportunity for improvement on Beijing’s newly published pension plan.

The Plan

In summary, it works like an alternative saving account. You choose a ceiled amount each month to deposit into the pension account, accumulating at an interest rate of banks’ long-term saving rate. When retired, you receive RMB 280 (from Beijing local government) plus a preset monthly payment on your accumulated pension amount till you die. The principal amount will be in your will.

The interesting point is it allows you to choose retirement age, and monthly payment rate ascend toward later retirement. The schedule:

Retirement Age	Monthly Payment Index	Equivalent Annual Interest
55	170	7.06%
56	164	7.32%
57	158	7.59%
58	152	7.89%
59	145	8.28%
60	139	8.63%
61	132	9.09%
62	125	9.60%
63	117	10.26%
64	109	11.01%
65	101	11.88%

Good for You?

How much you save thru the account is an impossible decision. You have to estimate, for example, how long you will live, and the expected long term interest rate / stock market development. Anyway, it’s a safe choice (sometimes pension funds implode, private or public), and not a bad one.

Possible Improvement

What’s more important though is a policy consideration – why not subsidize the low income?

Its correspondent in the U.S. is Social Security trust fund, which collect 12.4% of salary (50/50 from employer and employee). Benefit payment,  starting at age 65, bent toward the low income (meaning poor people get a higher return on the money).

This is my suggestion to the Beijing government. Don’t let capitalism beat socialists on socialism, or we may lose the race. There are two ways to do it, after some necessary adjustment: either increase the fixed portion (what can RMB 280 buy?) or fix the payment index for the benefit of the low incomers.

 

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