Introduction
Most people’s primary source of income in retirement is their pension. The industrialized nations’ pension systems were established at a time when seniors made up a small proportion of the population (Huang & Zhang, 2021). This system existed until the second part of the twentieth century and was founded on “intergenerational solidarity.” In certain nations, the solidarity system experienced a crisis in the 1970s (Huang & Zhang, 2021). The cause for this was the population’s rapid aging as a result of greater life expectancy and low birth rates. As a result, the ratio of working persons to seniors has fallen.
The system stopped satisfying the demands of seniors as the state’s duties to pensioners increased while the expenses of supporting the pension system increased. Reforming pension systems has become an unavoidable step for industrialized countries in order to understand this trend and the basis of the problem. Most nations’ remedies to this challenge included the implementation of a multi-pillar pension system, as well as raising the retirement age. There are different pension system models today, but nearly all are based on three primary strategies: pay-as-you-go, funded, and mixed (Huang & Zhang, 2021). There are certain parallels between the pension systems of China and Mongolia, but there are also significant variances.
Pension age is the legal age at which a citizen moves from being a payer of pension contributions (taxes) to a recipient of pension payments. Thus, at the macro level, the retirement age is one of the primary regulators of the ratio of pensioners and contributors in the pension system, indirectly affecting its balance and financial sustainability (He et al., 2022). The debate on raising the retirement age resumes whenever the pension system is underfunded, and levers are needed to bring it into balance.
Raising the retirement age is the easiest way to reduce the number of retirees and the costs of the pension system while increasing the labor supply and, consequently, tax revenues, including for pensions. The temptation is to maximize this resource by immediately raising the retirement age by five or more years. Raising the retirement age in one form or another is necessary.
Overview of the Pension System in Mongolia
The modern economy necessitates the pursuit of effective development scenarios in various areas of life. In 2022, the retirement age for males in Mongolia was 60. Women had a maximum retirement age of 60 and a minimum retirement age of 60 (Fu & Zhang, 2022). The minimum complete pension of 350,000 Tugrik has been increased to 500,000 Tugrik in 2022, while the proportionate minimum pension of â‚® 300,000 has been increased to â‚® 400,000 (Fu & Zhang, 2022).
In addition, until the end of 2022, the stipend for families with impaired children has been increased from 188,000 to 288,000 tugrik (Fu & Zhang, 2022). The decision to boost pensions was taken in the president’s direction. The social sphere and its core segments- healthcare, housing, education, and the pension system- are the most significant components of public administration that need to be transformed in the current economic context.
The current stage of development of Mongolia’s pension system is characterized by several strengths and challenges. As Mongolia’s pension system creates an excessive number of pension rights, the collected monies need to be utilized appropriately. Examples include low minimum years of service requirements for pension eligibility, early retirement, and low retirement age for women based on their projected pensionable years (He et al., 2022).
The introduction of new organizational and legal forms and procedures had to occur against the background of economic transformation accompanied by unfavorable demographic and social trends. The development of the pension system in Mongolia and China is accompanied by such unfavorable factors as population aging and disparities in income dynamics across sectors and territories. These include the persistent budget deficit of the Pension Fund of Mongolia and the insufficiency of available funds to support the pension system fully.
The low real retirement age is one of the main difficulties of the Mongolian pension system. Mongolia’s population is aging: in 2000 and 2005, the proportion of people aged 60 and over was 1.8% and 2.0%, respectively, and in 2010 it was already 2.4% (Fu & Zhang, 2022). The burden on the working-age population is also increasing: in 2000, there were 33 people of retirement age per 1,000 working-age people, 41 in 2005, and 45 in 2010 (Fu & Zhang, 2022). Nearly one in four retirees are working, with the rate much higher among those who have just taken a pension. This means that when the retirement age is reached, there is no real loss of working capacity, and it can be raised.
The fundamental issue with the current pension system is that the real retirement age is lower, and in some cases much lower, than the commonly set statutory (normative) age. People who had not reached retirement age received 6% of old-age labor pensions in 2010, and the proportion of such early retirees is growing year after year (He et al., 2022). Preferential and early pensions account for roughly 6-8% of new labor pension assignments, and this proportion is growing (He et al., 2022). It is worth noting that most early retirees continue to work. To begin with, this demonstrates the need for more present regulations for giving early retirement benefits.
Every fourth pensioner in Mongolia receives a pension for work under hazardous or challenging conditions. These pensions are awarded with an average decrease in retirement age of 5-10 years and without a reduction in pension amount for workers engaged in specific professions and sectors, as defined by legislation (He et al., 2022). Like other nations with an established pension system and an aging population, Mongolia has to adjust the circumstances of pension provision, including lifting the retirement age limits, which are also the working capacity limits. However, Mongolia’s demographic evolution precludes a quick and drastic increase in the retirement age for men and women. This compels Mongolia to seek alternative solutions to the problem.
Overview of China’s Pension System
Pensions in China are available to males at 60 and to women at 55; however, in rare situations, they may be younger. It is determined by working circumstances, duration of employment, and the nature of the work. Citizens who worked in state institutions and businesses and in industry were the first to be eligible for pensions; before, only these groups were eligible for any payouts. Only in the mid-1990s did China’s pension system begin to take shape, which aspires to cover all parts of the population (Knox-Vydmanov, 2022). Previously, older adults could rely entirely on their offspring.
Solidarity pensions are the most frequent form of pension in China. The employee contributes 8% of his income to the pension fund, while the company contributes 20%. The second kind is assumed for officials: they are paid more by the state, but the majority of their compensation is still deducted. The third category is for peasants with no particular income and urban unemployment. This is the government’s bare minimum. It is between 500 and 600 yuan (Knox-Vydmanov, 2022).
Since pension plans in China are constituted at the regional level, payouts might vary greatly. Since it has long been considered respectable in China to care for old relatives, this is how the elderly have largely lived, but the situation has not altered. This is due to various variables, including the enormous population, changes in political beliefs, an increase in the number of retirees, and the need for more of the pension system, which was not initially built for such a large number of people. Following the fall of the communes in the 1970s, the worst time was for the peasants, who were entirely devoid of financial support, but with the coming of the twenty-first century, the situation improved (Knox-Vydmanov, 2022). During the reform, the state raised the number of categories of residents who can get a pension, albeit the amount is still equal to the minimum, around 618 yuan.
However, China’s pension system, like that of Mongolia, is subject to modification. Li Keqiang, Premier of the State Council of the People’s Republic of China, stated in March 2021 that China’s retirement age will be gradually raised by 2025 (Knox-Vydmanov, 2022). This is owing to the Celestial Empire’s pension system being in a state of distress (Connelly & Maurer-Fazio, 2020).
There will be just two working pensioners for everyone working pensioner in 2025 (Knox-Vydmanov, 2022). The Chinese government acknowledges that by 2050, there will be about 335 million non-working individuals over 60 (Knox-Vydmanov, 2022). Furthermore, the pension fund’s obligation to pensioners will be in the billions of millions by 2030 (Knox-Vydmanov, 2022). Moreover, despite the fines and absolute monitoring, the majority of Chinese choose to save money “under the mattress.” Businesses conceal their profits in any manner feasible.
Comparison of Pension Systems
In China, retirement age is determined by region; men retire at the average age of 60, while women retire at the age of 55. Women who work in manual labor can retire at 50, but the average retirement age in Mongolia for both men and women is 60, but they can retire sooner. In China, as in Mongolia, there is no unified pension system, and despite significant improvements, over half of all older adults continue to receive no government assistance (Connelly & Maurer-Fazio, 2020).
12% of Mongolians get some form of pension, while 20% of the population is impoverished (Connelly & Maurer-Fazio, 2020). Workers in China, on the other hand, contribute 12% contributions to protect their future pensions. Workers must contribute just 4% of their salary, with employers covering the remaining 8% (Connelly & Maurer-Fazio, 2020). Organizations may save these donations totally on their own to cater to elderly retired personnel in the future.
Various labor bureaus in various Chinese provinces can also handle the money by investing it in enterprises or securities, growing the cash. Contributions to the basic pension can be at most 25% of the employee’s salary, and they must be made for at least 15 years (Connelly & Maurer-Fazio, 2020). If payments were made shorter than the authorized term, the person can only get a minimal pension and no social insurance.
A similar image emerges under Mongolian legislation, which states that a person with 20 or more years of insurance experience is entitled to an old-age insurance pension (Connelly & Maurer-Fazio, 2020). When computing the old-age pension for a person with 20 years of insurance service, the seniority coefficient is set at 45%, with an additional 1.5% added for each year above 20 years (Li et al., 2022). Overall life expectancy in 2014 was 69.1 years, 5.9 years higher than in 2000.
Men live an average of 65.4 years in Mongolia, while women live an average of 75 years. According to MLSP, males who retired on an old-age pension at 60 in 2013 will get a pension for an average of 15 years in 2020-15.8 years and in 2030-16.2 years (Li et al., 2022). Women who received an old-age pension at 55 in 2013 will receive it for an average of 23 years; in 2020, 23.5 years; and in 2030, 24.6 years. The average insurance service of males who retired in 2013 was 25.6 years, while women had 26.1 years (Li et al., 2022). So, after paying insurance payments for 25.6 years, a male will receive a pension for 15 years, while a woman will receive a pension for 23 years (Li et al., 2022). The progressive convergence of a woman’s working life and her retirement life expectancy affects the overall cost of the FSS and the number of pension payments.
Virtual personal accounts were established in 2000 for persons born after 1960 to keep track of insurance contributions. Individual personal accounts were formed for 1.1 million people who were covered by the obligatory pension insurance scheme, and 6.9 trillion tugriks were practically deposited into them (Li et al., 2022). However, 73% of insured people have contributed to their insurance for fewer than five years (Li et al., 2022).
Unlike Mongolia, China is moving quickly to enhance returns and serve a rising population of retirees. The country plans to centralize pension fund management and transfer funds into riskier investments. Some municipal and regional pension funds will be moved to the centralized National Social Security Fund (NSSF), which will be headquartered in Beijing and will have broader mandates to invest in riskier assets such as shares, bonds, and private equity (Huang et al., 2023). The Chinese communist regime’s twin goal is served by expanding the NSSF and shifting money into the stock market. In principle, investment in the stock market should yield better returns and allow the fund to expand in size to meet rising pension payments.
Local and regional funds could not do this due to investment limitations and poor interest rates. Even though the whole pension system would have been enough to care for most senior persons, this component suffered as local governments pulled funds from these accounts to satisfy the pay-as-you-go gap in pensions. This resulted in a big problem: a little lack of money for payments.
To address the issue, the Chinese government has made efforts to refill the general budget through fiscal charges levied by local and central governments. The policy is part of a Liaoning provincial pension reform pilot project that began in 2001 to replace empty accounts with cash equal to 5% of salaries (Huang et al., 2023). The national government contributes 3.75%, while local governments provide 1.25% (Huang et al., 2023). Once the accounts are filled, the balance is increased by 1% of wages annually until 8% is reached (Huang et al., 2023). Furthermore, increasing institutional money in Chinese stock markets may lessen stock market volatility by lowering the effect of volatile retail investors.
A more consistent flow of assets from pension funds could help stabilize markets shaken by the rapid entry of individual investors and capital withdrawals over the last two years. Beijing has been contemplating asset transfers to the NDRF since last June, during the height of the Shanghai stock market bubble and subsequent slump. Guangdong was the first province to transfer assets to the NDRF, and other provinces are following suit.
Mongolia’s pension fund would go insolvent unless the pension policy and system are reformed. The broken pension insurance system should be phased out and replaced with a new one that suits modern demands. Taking advantage of today’s favorable demographic scenario, it is vital to modernize the pension system by establishing a multi-level structure and updating the technique for calculating insurance pensions and pension contributions.
Mongolia should also increase obligatory pension insurance coverage to include livestock breeders and private sector workers. The right to a pension is legally guaranteed for all people, yet just 9.1% of 261.7 thousand working-age livestock farmers have pension insurance (Huang et al., 2023). The reason for this is that the present pension system is incompatible with the nature and manner of remuneration for their labor. Insurance premiums, as reimbursable contributions, should be returned to the elderly as pensions, as is done in China, to ensure equal distribution. Only compliance with these requirements will allow us to lower future social fund charges.
Conclusion
The cumulative ingredient can provide a pleasant old age based on the experience of the world’s countries. Countries must strengthen and preserve the required pension savings system. Additional payments should be made in Mongolia, like in China, and can be made by both employers and employees. Reforming so-called early retirement pensions, awarded for labor under specific working conditions without cutting the pension or requiring additional payments, is one viable alternative for Mongolia.
The establishment of required occupational pension systems would lower the strain on the state pension system and, as a result, raise the real retirement age for state benefits. To reduce its social and economic implications, this change should be confined to individuals under the age of 40-45. At the same time, several Chinese provinces have already implemented early retirement schemes to remove people from the state payroll.
Following a mandate in Beijing last year to restrict the production capacity of the steel and mining sectors, at least seven provinces, predominantly in the northeast, have announced the plan. It is a program implemented by Premier Zhu Rongji in the 1990s, in which early retirees are not recorded in official unemployment figures and are not eligible for a pension (He et al., 2022). Typically, early retirement programs shorten the process by five years. They receive a smaller monthly payment for five years but wait until the official retirement age to enjoy a full pension.
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