CHINA - China's "decentralised, fragmented and inefficient" pension system has strained local government's finances and is in need of urgent reform, the International Monetary Fund said.
The IMF said parameter changes were required - such as raising the retirement age and changing benefit payments - in order to ensure the sustainability of the system.
Depending on the magnitude of these changes, the costs of the transition to a viable pension system could run "substantially higher" than laid out in the government budget, the IMF warned.
In a staff report, the IMF explained pension reform would be key to boosting Chinese consumption by reducing precautionary savings. At present, households save around 30% of their disposable income, and uncertainty surrounding public pensions was cited as one of the reasons.
According to IMF staff, the Chinese government needed to raise social spending in the pension sector in order to boost consumption over time. An improvement in this sector would facilitate rebalancing of the economy and improve the intermediation of China's large private savings, the IMF said.
The Chinese pension system only covered a quarter of the work force and impeded labour mobility, the report stated
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