China can, and should, lower pension contributions, says Fudan professor

Feng Jin, chair of Public Economics at Fudan & longtime observer of China's social-security reform, calls for reforms that fit today's employment models while addressing legacy disparities in pensions

On August 1, 2025, China's Supreme People's Court issued a judicial interpretation stating that any agreement or promise between a worker and an employer not to pay social insurance is invalid. The move sparked intense debate. Many called it a "new social insurance rule" and worried the "new policy" would make life even harder for small firms and self-employed businesses.

Feng Jin 封进, who has studied social security for 23 years, is now a Distinguished Professor and chair of Public Economics at Fudan University. Trained first in agricultural economics, she began studying international pension reforms during visits to the Tinbergen Institute in the Netherlands, the University of Cambridge in the UK, and France's Center for Employment Studies. In 2002, she shifted to China's then-recently reformed pension system. In recent years, she has done extensive work on health insurance.

In her view, the backlash from the judicial interpretation reflects long-standing public frustration and anxiety about the heavy burden of social insurance contributions.

The contributions to China's basic old-age insurance are too heavy is one of the few points of consensus in pension reform debates. "A large body of research finds that higher social insurance burdens erode firms' profitability, reducing their demand for labor and, over the long term, harming the economy," Feng says.

Analyzing large datasets, she and her co-authors find that high contribution rates encourage firms to substitute machines for workers, and that the substitution falls disproportionately on low-skilled labor.¹ By contrast, cutting pension contribution rates raises firms' willingness to insure employees and to hire, especially among small and medium private enterprises.²

In 2016, Feng published a comprehensive study of pension policy, Sustainable Pension Levels: Perspectives from Globalization, Urbanization, and Aging《可持续的养老保险水平：全球化、城市化、老龄化的视角》, arguing with theory and real-world data that lowering China's contribution rates is both necessary and feasible.

Her research finds that social insurance contributions have limited impact on overall wages, but the story is different for less-educated, non-technical workers: firms pass on a sizable share of the burden, roughly 10%–50%, into wages.

Feng argues that if rates are reduced, more people will choose to participate, offsetting the revenue loss. Based on her calculations, assuming broader coverage, stricter collection, and later retirement, if the combined employee-plus-employer rate fell by 8 percentage points, fiscal pressure would not rise and the pension fund would remain broadly balanced over the next 50 years.

On August 11, Feng received an interview with LatePost on these issues, and the LatePost publicly releases their dialogue.

As a witness and researcher of China's pension, health, and broader social security reforms, Feng sees funding as today's central challenge. Without enough money, reforms to lighten contribution burdens, raise benefits, or improve fairness become empty talk.

"With a limited fiscal budget, you can't give everything to pensions. Health insurance gaps are large, and many other priorities, from resolving local debt and building infrastructure to industrial subsidies, also need funding. In the end, growth matters most," Feng says.

Below is an edited Q&A between LatePost and Feng Jin, and all the words in bold are added by me. The translation has not been reviewed by Ms. Feng.

社保的经济账和公平账，到底该怎么算？

How should we really balance the economics and fairness of social insurance?

Traditional employment contracts are increasingly out of step with the new economy

LatePost: The Supreme People's Court's recent interpretation — "agreements or promises between workers and employers not to pay social insurance are invalid" — has stirred controversy. Many worry that, in today's economy, this will add to the pressure on small firms and the self-employed and undermine recovery. As a scholar of the economics of social insurance, how do you view this interpretation?

Feng Jin: It's not a "new rule." It implements the Labor Contract Law. Courts have long ruled that once an employment contract is signed, any promise not to pay social insurance has no legal force.

One SPC case is illustrative. In July 2022, Mr. Zhu joined a security company. The two sides agreed not to pay social insurance and to compensate him via an allowance. Mr. Zhu later sued on the basis of non-payment. The court ordered the company to pay economic compensation for termination of the contract.

On the other hand, in July 2021, the Ministry of Human Resources and Social Security and seven other agencies issued the Guiding Opinions on Protecting the Labor Rights of New-Form Employment. It states that if the parties sign an incomplete employment contract, then an agreement not to pay social insurance can be valid. In practice, the law leaves space for small firms, especially platform-economy businesses.

According to the National Development and Reform Commission, "new-form employment" has five traits: flexible labor relations, diverse tasks, elastic work modes, de-organized work arrangements, and internet-enabled entrepreneurship. The scope is broad; many SMEs fit under it.

With the rise of the digital economy, traditional labor relations are increasingly misaligned with how employers and workers operate. In the future, more people may sign incomplete contracts. That aligns better with China's shift in growth model and digitalization.

LatePost: Some argue that, by international standards, China's contribution rates and bases for firms and individuals are too high. In some cities, average wages in private firms are near or even below the minimum contribution base. They call for lowering both the rate and the base. Do you agree?

Feng Jin: Under formal employment contracts, the contribution burden is indeed heavy. It used to be even heavier: employers paid 20%, employees 8%. Since 2019, the employer rate fell to 16% while the employee share stayed at 8%, for a combined 24%.

Other countries' pension contribution rates are, for example: Korea 4.5% employer and 4.5% employee, total 9%; Canada 5% and 5%, total 10%; the United States 6.2% and 6.2%, total 12.4%; Japan 7.7% and 7.7%, total 15.4%; Sweden 7% employer and 11.9% employee, total 18.9%.

A large literature, including our own, finds that high social insurance burdens squeeze profitability, lowering firms' demand for labor. In short, workers face fewer job opportunities, and firms' innovation capacity suffers. Over time, that's bad for both sides and for the economy as a whole. Social insurance must be moderate and aligned with growth.

However, with rapid aging, the legacy costs of past transitions, and incomplete compliance with the Social Insurance Law by some employers (for instance, under-reporting the wage base or delaying payments), authorities are cautious about further cuts.

Shifts in employment structure will also matter more going forward. As more people move into new-form employment, growth in the number of newly insured employees is slowing. (Note: At his post-Two Sessions press conference in 2021, then-Premier Li Keqiang said, "Flexible employment is rising in China and already involves more than 200 million people. Some hold several jobs and work very hard, so we should subsidize their social insurance." )

So although the broad trend is tax-and-fee cuts, especially the 4-point employer pension cut in 2019, further reductions are difficult now, or the fund's cash flow would come under great strain.

LatePost: Advanced economies handle platform gig workers' social insurance differently. Some are fully mandatory (France requires Uber food-delivery workers to join social insurance ), some semi-mandatory ( the UK's "worker" status confers partial rights) , and some rely mainly on voluntary participation (most U.S. states do not mandate pensions for gig workers) . Over the long run, what are the pros and cons?

Feng Jin: This is a central topic at the International Labour Organization, but there's no consensus on which model best fits the gig economy. The general leaning is that traditional, employer-employee social insurance does not suit gig work.

In other words, compulsory social insurance under today's framework doesn't match gig realities. A gig worker may have multiple "employers." Who, then, is compelled to contribute? That’s a practical problem.

From workers' perspective, gig work values flexible time and place. Workers don't want to be tied to a single platform; they may take tasks from several, and they value control over their schedules. If you mandate formal contracts and contributions, you sacrifice that flexibility, a feature workers may not want to give up.

LatePost: At least two large platforms piloted contributions and found that most gig workers opted for more cash rather than employees' social insurance. Why?

Feng Jin: Many enroll in the residents' pension or residents' medical insurance. Those are voluntary and don't require a platform contract or employer contributions. From what I know, most people do join some form of medical cover, as it's a protection they value. But many don't buy pension coverage because they are young and see retirement as far away.

Separately, platforms in several cities have piloted a new occupational injury protection. This is promoted by the human-resources authority, platforms, and commercial insurers. It's essentially a parallel to work-injury insurance, because the traditional scheme doesn't fit platform jobs. I think this protection is very necessary, workers want it, and coverage will likely expand.

LatePost: Gig roles differ widely — food couriers, ride-hailing drivers, streamers, domestic workers — each with different intensity and career spans. Could schemes be tailored by industry?

Feng Jin: That's not realistic. People switch sectors. If you tailor by industry, you create friction for mobility and make it harder for workers to move across jobs.

Pension gaps are historically rooted, but we should acknowledge the unfairness and narrow them.

LatePost: Social insurance is also redistribution. Beyond changing contribution and benefit ratios, are there global practices that flexibly allocate benefits to protect fairness?

Feng Jin: Japan's National Pension is a good design that balances universal basics with differentiated needs. Regardless of your job or income, you get a National Pension, and that's the floor, not linked to income or employment status. People with stable jobs or higher incomes then have additional layers. This both guarantees a safety net and accommodates different needs.

LatePost: Historical and institutional factors have created perceived unfairness between contribution and pension levels across groups, for example, inside vs. outside the state apparatus, and urban vs. rural. Your take?

Feng Jin: The employees' scheme and the residents' scheme produce very different pensions because they are different systems. In the employees' scheme, the contribution base is your wage: roughly 16% employer and 8% employee per month. In the residents' scheme, the minimum annual premium is typically a few hundred yuan, about 200 yuan in Henan and up to 1,000 yuan in Beijing, and residents' pensions rely mainly on government subsidies; your own payments go into an individual account.

By my rough calculation, average contributions differ by about 15 times across the two systems, while average benefits differ by about 20 times. From an actuarial-balance perspective, the gap is "reasonable." From a social-equity perspective, it's not. Older generations of rural residents sacrificed to support urban development; the government should not let them fall into old-age poverty. It can raise residents' pensions via fiscal subsidies and long-term bond issuance as compensation.

LatePost: Public dissatisfaction over urban-rural gaps is largely historical. China only created social insurance in the 1990s. Urban workers' pre-1997 years can be "deemed contributions," while rural residents were required to turn over "public grain"(交公粮) — state-mandated grain deliveries — without receiving commensurate pension subsidies.”

Feng Jin: Right. In 1997 China reformed pensions. Before that, labor insurance ran at the firm level; firms covered workers "from cradle to grave." After 1997, it became social insurance, split into pooled and individual accounts; pensions are no longer paid by firms but by the social security agency.

For those who started work before 1997, the government introduced a transitional
"deemed contribution视同缴费" policy. For example, if someone began working at 20, turned 50 in 1997, and retired at 60, then those 30 pre-1997 years count as pension years.

I also agree on the public grain issue. China pursued a catch-up strategy, suppressing farm-product prices to accumulate capital for industrialization. Farmers made a huge contribution and deserve compensation.

(Note: At the Boao Forum this year, Guo Shuqing, Deputy Director of the National People’s Congress Financial and Economic Affairs Committee and former China Banking and Insurance Regulatory Commission chairman, said: "The division into three schemes — employees职工, residents居民, and public institutions机关事业单位 — has its logic, but current gaps are too large. For example, in 2024 the average residents' pension is about 240 yuan per month, only 12% of rural per-capita disposable income and 40% of the minimum living standard, far short of basic living costs. Employees' pensions are about 14 times residents', a huge disparity. We could consider persistently and substantially raising the residents' basic pension so that, over five or six years, it approaches the lower bound for urban employees' pensions, narrowing average income gaps between urban and rural elderly, from 3.4 times in 2021 to perhaps 2.4 by 2030 or lower.” )

LatePost: What about inside vs. outside the state apparatus?

Feng Jin: In most countries, civil servants' pensions are higher than those of employees and residents. The rationale is the "golden handcuffs": relatively clean public service in exchange for higher retirement benefits.

China used to run a separate system for government and public institutions (事业机关单位), which drew much criticism. In 2015, it was merged with the employees' scheme, and contributions and benefit formulas are now the same for anyone who joined after 2015. But civil servants also have an occupational annuity, typically 8% from the employer and 4% from the individual.

If people think that's too generous, we may need to revisit the design. Many firms can't afford corporate annuities; in practice, only government organs, large SOEs, financial firms, and a few multinationals participate. Participants in enterprise annuities number just over 5% of those in basic pensions.

Elsewhere, labor markets are more competitive and fairer. Public-sector salaries are usually lower than in finance or high tech, but pensions are higher, allowing people to choose based on preference.

LatePost: In China, public-sector pay is higher than in private firms. In 2024, average annual wages were 124,110 yuan in urban non-private units and 69,476 yuan in private units, about 1.8 times higher in the former.

Feng Jin: That's why so many people sit civil-service exams: stability, higher pay, and higher pensions. Today's pension system is carrying the weight of broader labor-market inequities, but the root problem isn't the pension per se. Put simply, who becomes a civil servant may not always be the outcome of fully fair competition.

LatePost: Some suggest capping pensions, for example, freezing raises above 10,000 yuan per month until rural residents' pensions reach 1,000 yuan per month. Your view?

Feng Jin: I agree. Gaps are too large. They're historically rooted, but we should acknowledge the unfairness and narrow them.

There are two levers. One is to lift the bottom — rural residents' pensions, for example. The other is to press down the top, which is also the general direction in aging societies. Implicit steps are already underway: delayed retirement; raising the vesting period for the basic pension from 15 to 20 years; smaller percentage increases for those with higher pensions and larger ones for those with lower pensions.

We shouldn't expect to level the field overnight. Pension reforms typically move gradually toward a fairer equilibrium.

We hope future generations are wiser, and can fill the shortfall with the wealth they create

LatePost: In many places, the minimum contribution base is far above the local minimum wage. If firms pay social insurance, their actual labor cost can exceed the minimum wage by dozens of percentage points. How is this different from simply raising the minimum wage?

Feng Jin: Once a labor contract is signed, contributions are mandatory because social insurance systems worry about short-termism — people not saving for the future — so the state imposes forced saving.

This is often called "paternalism" in social insurance. But if "paternalism" sets the burden too high, it suppresses current consumption for workers and can crowd out firms' capital spending or innovation, sapping vitality. That argues for lower rates.

Yet China faces a tension between burden-reduction and the funding needed to keep the system sustainable.

(Note: In an interview with The Intellectual, Lu Quan, Secretary-General of the China Social Security Society and professor at Renmin University, said: "There's evidence that more contributors now earn below 60% of the social average wage, which diverges from our original expectations. We set a lower bound for the contribution base to ensure adequate pensions and avoid unduly low benefits. But as the social average wage has grown quickly, many feel they are 'averaged up.'

We see two reform ideas. First, reduce the lower bound, say from 60% to 40%, or even use the minimum wage as the base. This eases burdens on low-income workers but creates moral hazard if high earners pay the minimum; that would require robust income verification.

Second, adjust how the social average wage is calculated by expanding to a full-caliber measure that includes private firms and flexible workers so that bases better match actual incomes.

Internationally, some countries grant exemptions or progressive rates for low-income groups. We could further lower rates for them, or consider removing the upper cap so high earners shoulder more. Whatever the reform, the key is an accurate income database and balancing burden-relief with moral-hazard risks." )

LatePost: In your review of former PBoC governor Zhou Xiaochuan's book Framework and Path of Pension Reform 《养老金改革的分析框架与路径选择》, you wrote: Only by lowering basic pension contribution rates can we make room for a multi-pillar system," a rare point of consensus. Where does the debate lie?

Feng Jin: First, the gaps we discussed, namely urban vs. rural, public vs. private. Second, there's debate over how much should go to individual accounts versus the pooled account. Participation incentives are weak. Some high-income, especially younger, people are reluctant to join, worried about what they'll get back.

So some advocate raising the individual-account share to strengthen the "pay more, get more" incentive. Another issue is that today's individual accounts are "empty" — they show balances but lack matching assets. Some, including Zhou Xiaochuan, argue for making them fully funded to increase transparency and incentives.

Fully funding accounts could also deepen capital markets by adding long-term institutional money. But doing so requires significant fiscal input, so change is unlikely in the short run.

LatePost: On the multi-pillar model, China now has three pillars: basic pensions (pillar one), occupational annuities (pillar two), and personal pensions (pillar three) . Because most people lack pillar two, many see pillar three as the future. Although there is a tax-favored allowance of 12000 yuan per person per year, take-up remains low.

Feng Jin: Right. Over time, gaps in pillar one should narrow, and differences will mainly come from pillars two and three. Since growing pillar two is hard, the near-term room for reform is pillar three, and the framework is in place. For example, the 12,000-yuan annual tax-free cap could be raised, and people below the tax threshold could be exempted from the 3% tax when they draw benefits.

LatePost: Low fertility combined with the retirement of the 1950s–60s baby boomers makes future pension shortfalls a serious risk. Whether it's platforms enrolling couriers, this judicial interpretation, or last year's delay-retirement policy, many see these as responses to the looming gap, joking that "it's not that young people will need social insurance later; it's that social insurance needs young people now."

Feng Jin: Younger colleagues worry about whether they'll ever receive a pension. I think they probably will, because pensions carry the state's credit. But replacement rates will likely fall. Replacement rate means the ratio of your initial pension to your pre-retirement contribution wage. Typically, those with higher contribution wages have lower replacement ratios. On average, the first-year pension is about 70% of the pre-retirement contribution wage today.

Shortfalls are likely to be serious. As we noted, platform workers often don't join employees' schemes, and if they do, they prefer residents' plans. Meanwhile, the AI era may reduce headcounts as machines replace people. So contributors may trend down even as beneficiaries rise for a long time, with rigid benefit obligations.

This imbalance isn't unique to China. Some suggest new tax bases: Japan supplements pensions with consumption tax, for example. But a general consumption tax is not realistic in China right now; it could dampen consumption.

Europe has debated a "robot tax" for years, but no country has adopted one. It's effectively a tax on capital. Capital is highly mobile: if China taxed robots, firms might move to Vietnam, while workers can't easily follow. That said, China likely has room to tax capital more. If AI brings great abundance and a much larger tax base, distortions from capital taxes would be smaller.

LatePost: Some scholars propose transferring SOE shares to the social security fund. Would that solve the problem?

Feng Jin: It’s a drop in the bucket. SOE shares can't be sold without causing "state asset losses," so the idea is to funnel dividends from the transferred shares into the fund. Rough math: annual pension outlays are in the trillions of yuan, while SOE dividends are only in the hundreds of billions, less than 1% of spending.

China's outstanding long-term government debt is much smaller than in Japan or the U.S. A more feasible approach is to issue special long-term bonds to let future generations' wealth fill today's gap.

We hope our children are wiser than us, and that the wealth they create will ultimately fill the shortfall.

Good public policy should boost certainty about the future

LatePost: Some workers don't want to contribute where they work because they fear they can't "take it home." Scholars call for deeper national integration of social insurance, which also touches on hukou户口 reform. Your thoughts?

Feng Jin: Portability is largely solved; bringing benefits back to one's hometown is not hard. That said, cross-province transfers do involve paperwork, and some rules are complex. For example, if your household registration differs from your final place of contribution and you've paid at least 10 years in the final place, you draw benefits there; if not, you look back to the most recent place with 10 years; if nowhere hits 10 years, you draw in your registered hometown.

But as I said, an employer-employee-based system doesn't fit the digital-economy era. We need reform. Years ago, I suggested offering more choices to match diverse needs, for example, a lower-contribution-lower-benefit option alongside today's higher-contribution-higher-benefit plan.

Officials rarely float such proposals, but I think we may need multiple options for firms and workers. In the platform era, many refuse employees' pensions and opt for residents' plans, which puts pressure on government finances because residents’ pensions are heavily subsidized by central and local budgets. Megacities also impose residency thresholds to deter "welfare migration."

Fiscal space is limited. You can't put it all into pensions; health-care gaps are large, and many other needs, from local-debt resolution to infrastructure and industrial policy, require funds. In the end, economic growth is essential.

LatePost: Analysts link several recent policy threads: on one side, raising the number of contributors to social insurance, taxing offshore investment income, taxes on government bonds, and "distant-water fishing"; on the other, child-rearing subsidies, education subsidies, trade-in subsidies, and "anti-involution" measures. How do you view these?

Feng Jin: The key is that China's growth model is changing, from exports and investment toward consumption-led growth.

Both national goods trade-in schemes and pension reforms ultimately aim to encourage people to spend, rather than over-save for an uncertain future. Chinese households have money but are reluctant to spend.

(Note: According to the National Bureau of Statistics, China's household saving rate reached 55.5% in 2024, up 11.2 percentage points from 2023 and the highest since 1952.)

Keynesian demand stimulus has a track record: public policy can catalyze consumption and get the economic flywheel turning.

Good public policy increases certainty and improves expectations about the future. Policies are complex, but reducing uncertainty is crucial and can deliver outsized effects.

LatePost: Could you be more concrete? Some say child-rearing subsidies are too small and too short.

Feng Jin: The central government's child-rearing subsidy of 3,600 yuan per year paid until age three is just a national floor. Localities can top it up based on fertility and fiscal capacity.

How much it will lift fertility remains to be seen.

(Note: For example, in Tianmen, Hubei Province, the combined value of birth medical subsidies, child-rearing subsidies, home-purchase support, and other measures can reach nearly 290,000 yuan for two-child families and nearly 360,000 yuan for three-child families. In Hohhot, Inner Mongolia, families receive a one-time 10,000-yuan subsidy for the first child; 50,000 yuan for the second child, paid as 10,000 yuan per year until age five; and 100,000 yuan for the third child and beyond, paid as 10,000 yuan per year until age ten.)

LatePost: What about national trade-in subsidies? Some scholars argue they benefit too few and that cash should go directly to low-income households.

Feng Jin: Many make that point. Big-ticket goods are mainly bought by the middle class and above; poorer households may not want a new TV, fridge, or washer. And trade-ins don't sustain demand — once you replace a big appliance, you won't do it again soon.

Strengthening cash transfers to low-income groups may be more efficient. China's Social Assistance Law is currently out for public comment and under review by the NPC Standing Committee. It will legally clarify how to improve minimum-income and related programs.

LatePost: Anything to add on social security?

Feng Jin: We've focused on pensions, but social security includes other programs. Health-care challenges are even bigger, involving the "three-medical linkage" (medical services, medical insurance, and pharmaceuticals) , and information asymmetries are much greater than in pensions.

Execution on social welfare also needs work. China's social "involution" leaves people with little time to consume even if they have money. We need stronger enforcement of the eight-hour workday and statutory holidays. Changing overtime culture would free time for personal development and consumption.

There are many problems, but as a researcher familiar with history and international comparisons, I think China has done remarkably well given its vast population and limited resources, better than peers like India and Brazil, and will continue to improve. Enditem

1. Song, Hong; Feng, Jin; Yang, Wanyu. 2021. 社保缴费率下降对企业社保缴费与劳动力雇佣的影响 [The impact of reducing social insurance contribution rates on firms' contributions and labor hiring]. 经济研究 [Economic Research Journal], no. 1.

2. Tang, Jue; Feng, Jin. 2019. 社会保险缴费对企业资本劳动比的影响——以21世纪初省级养老保险征收机构变更为例 [The effect of social insurance contributions on firms' capital–labor ratio: Evidence from changes in provincial pension collection agencies in the early 21st century]. 经济研究 [Economic Research Journal], no. 11