Wu Guangqiang

    THE news that the Guangdong Provincial Government entrusted 100 billion yuan (US$16 billion) of its funds in local pension accounts to the National Council for Social Security Fund (NCSS) for investment has given rise to worries among the public. Most worried are pensioners and would-be ones, considering the problems facing China’s pension assets.

    The greatest public concern is the risk of the money in pension accounts dwindling in value as a result of misjudged investments or poor management. Despite the NCSS manager’s pledge to maintain and increase the value of these local pension funds by allocating more to fixed-income products, the fact that China’s stock market has long been bearish and volatile and the general performance of pension-fund-related investment has been poor leaves beneficiaries skeptical.

    According to an official source in Beijing during the “two sessions” in March, at present China’s overall individual pension accounts are 1.6 trillion yuan in the red, which is chilling. According to the government’s 2011 China Pension Report, total individual pension accounts should add up to 2 trillion yuan. However, in reality, there is approximately only 200 billion yuan — funded by just 13 provinces. Fourteen provinces were reported to have registered payment imbalances in 2010.

    Aggregated pension funds reserved for future retirees are being withdrawn to pay current pensioners. A World Bank study warns that by 2075, China’s pension accounts will see a deficit of 9.15 trillion yuan if nothing changes in the current model.

    Unless something effective is done, around a decade from now retirees will have nothing to live on, considering the vicious inflation rates.

    I myself will soon join the ranks of pensioners, so I have every reason to be fussy about the safety of the money. My deep distrust of so-called professional managers largely came from my wife’s unpleasant experience of putting her nest-egg money in a fund brokerage. They told her that her money was being managed by smart advisers in the most conservative way. They promised her pretty returns with the appropriate mix of stocks and bonds. In the end, they lost money.

    An array of problems makes me even less confident about the safety of my pension: the slowness in introducing pension-fund-related legislation, the lack of transparency of the fund operation, and the insufficient sources of pension funds.

    It is common knowledge that high returns and high risks are twins. So splitting eggs into different baskets is always the best policy. But only by legislation can the goal of maintaining and increasing the value of pension assets be achieved. The United States has done a great job in this regard. The Employee Retirement Income Security Act of 1974 (ERISA) is highly complicated and provides detailed regulations for many aspects of defined contribution plans. These include the famous 401(k). U.S. law allows pension funds to be invested only in government bonds while enterprise annuity is allowed to make riskier investments. China, nonetheless, has yet to introduce proper legislation to govern the issue. The only relevant law is Social Insurance Law of the People’s Republic of China (effective July 1, 2011). But it is far from specific and comprehensive enough to be a reliable law for proper management of pension funds.

    Transparency is the last thing we can find with our pension accounts. Entering my own account, the only thing I can see is the breakdown of my contribution. Even my enterprise annuity account shows nothing but a line of figures; I have no idea what they are doing with my money. No one is telling us such information as the balance of the individual pension accounts of our city, and the whereabouts of the social mutual assistance programs that accounts for 20 percent of the total pension assets. Who can guarantee that on the day I start receiving my pension, my account is not in the red?

    By comparison, Hong Kong is doing well. A Hong Kong professor contributes 5 percent of his salary to the pension program and his school 15 percent. He can make his own decision as to how to invest his money. The broker will send him a monthly statement to inform him of every detail of his account.

    The safety of the pension money has a bearing not only on the well-being of every individual but also on the future of the country, so the Central Government should do something now.

    (The author is an English tutor and a freelance writer. He can be reached at jw368@163.com.)