From Beijing Youth Daily

The social security authority says it is considering the feasibility of postponing the retirement age. The message has stirred widespread concerns from working and retired people alike.

Two research reports are the most-quoted evidence used to support the proposal. Both conclude that the accumulated shortfall of the pension fund will equal 75 percent of GDP 38 years from now.

But, is the finding reliable?

To start, calculating the national pension fund deficit 38 years from now is a tricky proposition. Even if we have carefully designed the correct mathematical models, it is almost impossible to predict the overall retired population, let alone price levels and China's GDP 38 years from now. These are indispensable statistics to calculate the final results.

Indeed, the pension fund's shortage is 1.7 trillion yuan (about $270 billion) now. However, to fathom this gap comprehensively, we should first understand the structure of China's pension systems.

The account of China's pension fund consists of two big parts, the personal account and the government-funded account, which is further broken down into national government-funded and provincial government-funded accounts.

The national account had a surplus of 1.95 trillion yuan by late last year. The conditions of the provincial accounts vary among provinces. The overall balance of the 31 provincial level accounts was a surplus of more than 200 billion yuan last year.

The real gap of 1.7 trillion yuan is actually a temporary deficit of the personal accounts, especially in rich provinces. The pension level is higher in these better-off regions and lower in poor provinces. But the personal pension insurances of these rich provinces are not proportionally higher than their poor counterparts.

So the rich provinces can only divert money from the employed working people's wage accounts to pay pensions for the retired temporarily because they have no right to borrow more money from the national accounts than is permitted.

The central government has actually already started trying to integrate the provincial accounts into the national one. After it is accomplished, the shortages in the personal accounts of the rich provinces can be relieved to some extent. That's why the current gap should be called a temporary deficit.

Moreover, China has three kinds of pensions for urban retired workers, urban residents and rural residents, which are collected and paid in different channels under separate administrations. So it is of no real use only prattling about how big the gap is without analyzing the causes and its formation.

As State-owned enterprises gradually become open for private equity investors, some State-owned assets will be released every year and thus can be injected into the pension accounts.

Past experience indicates that more and more people have joined pension insurance since 2010. And China's pension system now covers more citizens than ever before.

These milestones should consolidate the central government's confidence as it pushes ahead the integration of different pension accounts, and uses more flexibility and foresight in the management of pension funds.