The State Council, China's Cabinet, decided to transfer some State-owned assets to the National Social Security Fund last year. The State Council recently issued a document saying it would establish a central adjustment system for basic pension funds of enterprise employees, which will come into effect on July 1, to balance the payment burdens of local governments.

Based on the existing pension system, the central adjustment fund will be established to regulate pension funds in different provinces and regions, which will help ensure that retirees receive complete payment on time. The adjustment fund will draw a certain portion from the provincial capital pool, which the central government can redistribute later.

The issuance of two significant reform measures in half a year to improve pension insurance shows the central government's determination to improve people's livelihoods at a time when China's population is rapidly aging.

According to National Bureau of Statistics data, by the end of 2017 China had 241 million people aged 60 years or above, accounting for 17.3 percent of the total population. The corresponding figures for 2011 were 184 million and 13.7 percent. Which means the number of senior citizens has increased by about 10 million a year over the past six years.

NBS data also show that 2017 recorded only 17.23 million new births, down 630,000 from 2016, the year when the family planning policy was eased to allow all couples to have two children. Such a drop was unexpected.

The aim of transferring some State-owned assets to the NSSF is to supplement the basic pension funds of enterprise employees, which face the severe challenge of an aging society. Since the scale of State-owned assets to be transferred is expected to be 10 trillion yuan ($1.52 trillion) while the NSSF capital is about 2.2 trillion yuan, the move will greatly increase the social security fund.

The establishment of the central adjustment system for basic pension funds of enterprise employees is basically aimed at adjusting the serious imbalance in pension funds among different provinces and regions. For instance, the pension fund in Heilongjiang province has almost run out, while Guangdong province's pension fund has a balance of more than 400 billion yuan.

Now, the central adjustment system's "turn in" ratio is 3 percent, which will be increased in the future to help fill the financial gap of pension funds in some provinces.

According to the central government document, all the provinces have to "turn in" a certain percentage of their pension funds based on the average salary as well as the number of people insured in the province. The provinces will receive a certain amount of the fund allocated by the central government, though, based on the number of retired people they have. Under such a system, the provinces with sufficient pension funds will have to contribute bigger amounts to the central adjustment fund, which the central government, in accordance with the central adjustment system, will allocate to those provinces that don't have enough pension funds.

The document also stipulates that the existing central fiscal subsidy will continue, so pension funds at various levels will continue receiving financial subsidies.

All the funds raised through the central adjustment system will be allocated to the local governments, and the central government will not establish any capital pool for investment. Besides, a central database which is shared by all fund-managing entities, to be set up to establish connectivity between the central and local governments, will verify whether the numbers of retired people provided by the provinces and regions are accurate. This will rule out any foul play. At present, more than 1,000 cities and counties manage the pension funds.

The central adjustment system for basic pension funds is unique to China. The country's pension fund is jointly managed by the central and local governments, with the central government making policies and the local governments managing their respective pension funds.

The flow of migrant population from some provinces to others has created a situation in which some provinces receive enough (or more than enough) pension premiums while the others don't. This has caused the provincial and regional imbalance in pension funds.

According to the reform schedule, the establishment of the central adjustment system is the first step in the two-year reform period. The second step will allow the provinces to manage the pension funds by 2020. And the third step will help the central government acquire the management of pension fund.

The author is director of World Social Security Research Center, Chinese Academy of Social Sciences.