Shenzhen Considers Raising Pension Contribution Rate

February 27, 2012 Posted by China Briefing Reading Time: 4 minutes

Feb. 27 – China’s southern city of Shenzhen is mulling a plan to lift the employer contribution rate for pension premiums by a further 3 percent, according to the recently released draft version of the “Social Pension Provisions of the Shenzhen Special Economic Zone” that is currently open to public opinions.

The new draft provisions would increase the rate of the combined pension contribution – made by both employees and employers – from the existing 18 percent to 21 percent. While the employees’ portion will remain the same at 8 percent under the new payment scheme, the employers would be required to contribute a higher percentage of 13 percent, compared to the existing 10 percent.

Where an employer announces bankruptcy, the discharge of pension premiums shall be scheduled prior to the discharge of secured claims, the new draft provisions specify, imposing more emphasis on employers’ obligations to complete their pension payments.

The proposal to raise employer pension contribution rates has provoked some arguments among decision makers. People against the plan point out that the new policy will increase the tax burdens of small and medium-sized enterprises, which have already been struggling amid the recession brought about by the recent global economic slowdown.

People supporting the draft provisions argue that Shenzhen’s employers have been enjoying a comparatively low pension contribution rate for quite some time now. Even with the implementation of the 13 percent rate, employers in the city would still be paying below the 18 percent to 20 percent typically seen in other mainland cities.

In addition, a main motivation for the policy adjustment is to make companies pay for the “loss” occurring to the city’s pension fund when cross-province pension transfers take place. Starting in 2010, in case of relocation, an employee can have his/her pension transferred from one province to another. An individual’s total transferable pension includes both the whole amount of the employee’s personal pension contributions and 12 percent of the employer’s pension contributions on behalf of the employee.

Therefore, based on Shenzhen’s current employer pension contribution rate of 10 percent, the city’s pension fund needs to compensate an extra 3 percent (two extra points for making up the 12 percent transferable pension contribution and one extra point for the adjustment fee charged by Guangdong Province during every transfer) every time an employee transfers his/her pension to another province.

After raising the employer contribution rate, Shenzhen’s pension fund can reach a better balance of payments in the long term, according to the local authorities.

The draft provisions are currently open for public opinions before February 29. Suggestions and comments can be sent to the Standing Committee of Shenzhen People’s Congress or posted at the city’s news portal Shenzhen News.

Dezan Shira & Associates is a specialist foreign direct investment practice and can advise international companies investing in China on the country’s complete legal, tax and operational issues. The firm was established in 1992 and maintains 12 offices throughout China, in addition to practicing in Hong Kong, India, Vietnam and Singapore. For advice on all matters of China HR, payroll and costs, please contact the firm at china@dezshira.com or visit our web site at www.dezshira.com.

This article is also available on Dezan Shira & Associates’ online business resource library. To view the article, and other regulatory updates, please click here.

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