China's pension system needs an overhaul because it is neither fair nor sustainable
Supreme People's Court ruled that any private agreement between employers and employees to evade payment of retirement funds was invalid.
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While the legal interpretation reiterated existing laws and regulations, it struck a nerve with the population and triggered doubts about the pension system's fairness and sustainability.
China's pay-as-you-go system, which requires workers to contribute funds into a state-managed pool to pay for their retirement, essentially serves as a 'social security tax' levied on both employers and employees.
An employer must pay an amount equivalent to about 19 per cent of an employee's salary to the pool, while the employee pays an additional 8 per cent to an individual account. That is often collected on a monthly basis, along with other payments for healthcare and unemployment social insurance.
The levy has been deemed so high that many private employers attempt to evade it. One way they do so is to set an artificially low taxable wage.
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An employer, for example, may report to the Ministry of Human Resources and Social Security that an employee only makes 3,000 yuan (US$418) as a monthly salary even though the worker actually earns 5,000 yuan.
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