China's Northeast points way to pension reform

CHANGCHUN, China, Mar 12 (Reuters) Greying Li Xianglin has tended the rusting machines of his run-down car parts factory for 14 years.

He is looking forward to the day he can put his feet up.

Thanks to pension reforms being piloted in northeast China, Li says his retirement is more secure than ever, even though his state-owned firm no longer provides cradle-to-grave welfare and has shed half its workforce in the past year.

''When I retire, I'll be comfortable,'' the 52-year-old said.

''I'll be able to go to the shops and pick what I have for dinner,'' he said as he recalled bitter years in the 1960s when even food was scarce.

China needs hundreds of millions more people like Li.

Only when people feel their old age is provided for will they be confident enough to spend more and save less, restoring balance to an economy over-reliant on exports and investment.

Stitching together a pension system that pays for itself and gives retirees enough to live on is also needed to defuse a ticking timebomb in China's finances and to nip in the bud any discontent among a rapidly ageing population.

Li has held an individual account since Beijing in 1997 embarked on reforms of its public pension system, which the Organisation for Economic Cooperation and Development (OECD) says covers just 14 per cent of the active population.

To complement the basic flat-rate pension, Beijing introduced a second pillar that provides a pension varying according to contributions paid into individual accounts.

But until the Northeast pilot scheme ringfenced them, those contributions were diverted to pay current pensioners.

''Now I know my six per cent contribution doesn't move, which gives me more security,'' said Li, who earns 900 yuan a month.

The pensions experiment began in Liaoning province in 2001 and was extended in 2004 to the neighbouring rust-belt provinces of Heilongjiang and Jilin.

Now that the schemes have achieved a degree of success, plans are in place to spread them to eight more provinces this year.

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