ADB Supports PRC Push for Universal Pension Coverage

MANILA, PHILIPPINES - The Asian Development Bank (ADB) is providing a technical assistance grant of $500,000 to help People’s Republic of China’s (PRC) establish an effective rural pension scheme that can help the country meet its goal of universal coverage by 2020.

It will be used to lay the groundwork for a government-run pilot pension scheme that will be carried out this year in 200 rural counties across the country, before being replicated elsewhere. PRC is targeting 100% participation in urban and rural pension systems by 2020.

"The technical assistance will improve the policy and regulatory framework and financing mechanisms for a pension system that will provide basic old-age income protection for the rural population," said Ying Qian, Principal Financial Sector Economist for ADB’s East Asia Department.

Activities will include field studies of existing pilot rural schemes and reports providing guidance on the policy, operational, technical, financial, and management parameters needed to develop a sustainable and effective rural safety net.

The PRC has well developed urban pension schemes, but most of those trialed in the rural sector - which makes up around 70% of the population - have been largely unsuccessful as they lacked government fiscal support. However, a new formula that combines a basic government-funded ‘subsistence’ pension with individual account contributions has shown signs of promise, and a variation on this model will be used for the pilot scheme.

The need for comprehensive pension coverage has been heightened by the rising age of the rural population, the sharp slump in the number of farmers, and the return of millions of migrant workers to their rural hometowns due to the financial crisis. A universal social security system is crucial for bridging the urban-rural divide, and an inclusive cost-effective rural pension scheme could be a prime candidate for fiscal stimulus support.

Along with the grant from ADB’s regular technical assistance funds, the government will provide counterpart support equivalent to $200,000 for a total project cost of $700,000. The Ministry of Human Resources and Social Security will be the executing agency with an estimated completion date of December 2010.