While the legal interpretation reiterated existing laws and regulations, it struck a nerve with the population and triggered doubts about the pension system’s fairness and sustainability.

China’s pay-as-you-go system, which requires workers to contribute funds into a state-managed pool to pay for their retirement, essentially serves as a “social security tax” levied on both employers and employees.

An employer must pay an amount equivalent to about 19 per cent of an employee’s salary to the pool, while the employee pays an additional 8 per cent to an individual account. That is often collected on a monthly basis, along with other payments for healthcare and unemployment social insurance.

The levy has been deemed so high that many private employers attempt to evade it. One way they do so is to set an artificially low taxable wage.

An employer, for example, may report to the Ministry of Human Resources and Social Security that an employee only makes 3,000 yuan (US$418) as a monthly salary even though the worker actually earns 5,000 yuan.

That loophole, however, was blocked in 2020 when the collection of social security payments became the responsibility of the State Taxation Administration, which has the database and technology to ascertain an employer’s wage payments and other details.

In the services sector, such as the restaurant business, fixed-term employment is rare. So an employer often enters into a tacit agreement with employees to avoid social security payments. As compensation, the employer agrees to pay part of that uncollected levy to employees.

For a 45-year-old migrant worker, it would be nearly impossible to get a Shanghai pension. Therefore, it is a fool’s errand to make social security payments to the city.

Still, the biggest problem with China’s pension system remains its lack of fairness, which is why the public opposes mandatory collection.

That unbalanced and fragmented pension system has caused harm to China’s economic growth and societal equality, while bringing about a long list of social problems. These problems have obstructed Beijing’s strategic efforts in boosting domestic consumption, population and regional balance.

At present, the happiest societal group in China is said to be pensioners in the urban areas, where they are entitled to a monthly pension that is often much larger than a young worker’s average salary.

The solution to China’s pension problem is not about forcing the working population to pay more. What the country needs is an overhaul of the system to make it more sustainable, inclusive and fair.