As the problem of aging has become increasingly serious, the sustainability of the pension system in many countries is facing grave challenges. Under such a backdrop, it has become more relevant to build a multi-pillar pension system. The first pillar is the basic endowment insurance, the second is supplementary endowment insurance and the third one is commercial pension insurance.

In 2018, in order to build a sustainable pension system, the Chinese Government adopted an adjustment fund system for the basic pension covering employees of enterprises to address the pension gap among provincial regions and ensure punctual and full pension payments to retirees. The new policy was the first step toward a nationally coordinated pension plan.

China promoted commercial pension insurance by launching a pilot program last year providing individual income tax deferral on commercial pension contributions, investment gains and retirement distributions. The one year trial program took effect on May 1, 2018, and covered Fujian Province in southeast China, Shanghai and the Suzhou Industrial Park in Jiangsu Province in east China.

However, although China's pension insurance system has made headway in recent years, the three pillars are still unbalanced. The quality and efficiency of the first pillar needs to be improved and the coverage of the second pillar needs to be expanded. Currently, 23.88 million employees have joined the supplementary pension scheme, accounting for only 5.49 percent of urban workers. Commercial pension insurance also accounts for a small proportion of the GDP, needing to be further expanded.

China has also tried to use pension funds for investment in order to increase their value. As of September, local governments had signed a contract with the National Council for Social Security Fund to entrust the latter to invest their pension funds worth 966 billion yuan ($137.6 billion).

(This is an edited excerpt of an article originally published in Outlook Weekly on November 11)