Pension Plan

Pension Plan

China's Current Social Security Pension System

China's existing pension plan for the benefit of the people's social insurance was established on the first of July in the year 1997 by the State Council Document number 26. The pension plan was later amended and was updated in the year 2005 with the help of the document number 38. China's pension plan is mostly reliable on the recommendations given by the World Bank. However, the main aim of China's pension plan is to changeover the distinct benefit, practically clearing off the concept of the pay-as-you-go scheme. This system is based on a 3 pillar model, with the help of integrating all enterprise, as well as the self-employed human force in capitals and towns (Leckie, & Yasue, 2005).

The following are the two (2) main constituents of China's Current Social Security Pension System

Pillar IA of the Pension Plan is based on the enterprises; generally it contributes a tax subtraction of 20 percent of the employees total salary bill. This includes a number of specific rates of contribution determined via the provinces, along with the municipalities. However, in nearly all cases the incomes that are used for calculating the contributions are mainly subject to a supreme of 300 percent and lowest of 60 percent of average salaries in the vicinity.

Pillar IB refers to the individual employees who contribute even before the tax in the individual accounts. On the whole, the rate of contribution is 8 percent of salary which is subject to the 300 percent of the average salary to the account of an individual. All the individual accounts are particularly designed to be funded fully. As a matter of fact, many of the provinces of China is using such nature of funds so as to sustain Pillar 1A. On the other hand, this ...