On November 28, 2016, the Ministry of Human Resources and Social Security (“MHRSS”) issued the Notice on Several Issues in the Transfer and Continuation of Basic Pension Insurance of Urban Enterprise Employees (the “Notice”) clarifying several issues arising from the implementation of the Interim Measures for the Transfer and Continuation of Basic Pension Insurance of Urban Enterprise Employees (the “Interim Measures”) since 2010.

Regulations on Urban Employees’ Basic Pension Transfer and Continuation

Under the Social Insurance Law of the People's Republic of China enacted in 2010, the basic pension fund should gradually be pooled at a nationwide level, and other social insurance funds gradually be put under provincial pooling. Currently, however, the basic pension fund is provincially pooled.

Against such a background, when the insured migrate to another pooled area, social insurances that accumulate years of payment of contributions and relate the eligibility requirements to receive a pension and insurance benefits to such payment period (including the basic pension, basic medical insurance and unemployment insurance schemes) all give rise to an issue of cross-region transfer of insurance relationships and contributions.

Regarding the transfer of urban employees’ basic pension, the General Office of the State Council forwarded the Interim Measures formulated by the MHRSS and the Ministry of Finance at the end of 2009. The MHRSS subsequently issued the Notice on the Implementation of the Interim Measures for the Transfer and Continuation of the Urban Enterprise Employees’ Basic Pension, the Opinions on Several Specific Issues in the Transfer and Continuation of Urban Enterprise Employees’ Basic Pension and the Letter on Issues related to the Transfer and Continuation of Urban Employees’ Basic Pension. The forgoing regulations have generally structured the system of urban employees’ basic pension transfer across the PRC.

New Rules in the Notice

The recently released Notice mainly clarifies or addresses issues relating to years of deemed payment of contributions, temporary basic pension contribution account, and the place responsible for pension payment.

1. Years of Deemed Payment of Contributions

The urban employees’ basic pension scheme in China has undergone a reform from the “state or enterprise-paid” mode to the “enterprise and employee-paid” mode. The “years of deemed payment of contributions” (“years of deemed payment”) refers to an employee’s actual working years prior to mandatory payment of contributions that are deemed as years of payment of contributions.

a. Years of deemed payment should be recorded at the “then working place”

According to the Interim Measures, in principle, an eligible insured for pension from a place need to pay contributions to the pooled fund of such place for at least ten years, which include years of deemed payment. The Notice clarifies that years of deemed payment in the public and/or private sectors should be counted as years of payment at the place where the insured worked at that time, providing solutions for deciding the years of payment at different working places and the eligibility for pension.

b. Pre-1998 years of payment without acceptable payment record should be treated as years of deemed payment

Besides the above-mentioned “socialization”, the basic pension scheme was first piloted locally before its national expansion. As of January 1st, 1998, the individual contribution rate and the administration of individual accounts have been nationally unified. Records on individual contribution payment prior to January 1st, 1998 are either not maintained in detail in some places or inconsistent in item or standard, etc. To solve such historical left-over problems, the Notice provides that, where the necessary contribution record prior to 1998 is not available or admissible for pension calculation, relevant period of payment should be treated as years of deemed payment based on record of payment period and that on file.

2. Temporary Pension Account

Pursuant to the Interim Measures, when males aged 50 or above or females aged 40 or above (i.e., employees with less than ten years before their statutory retirement age, hereafter referred to as “40/50-year-old employees”) migrate to and are employed in another province, their basic pension accounts should be maintained in the previous working place, and a “temporary basic pension contribution account” (“temporary pension account”) set up at the current working place where they participate in new pension insurance to deposit all payment made by the employee and the employer. Both the employee’s and the employer’s contributions, rather than “12% of the employee’s total salary actually paid” (20% of the employer’s contributions)should all be transferred.

a. When 40/50-year-old employees relocate to another province for a second time, the temporary pension account should be put on hold

When 40/50-year-old employees relocate to another province for a second time, the Interim Measures prescribes that all the principals and interest in the temporary pension account should be transferred to the previous working place where they participate in former insurance or where they receive pensions.

In this regard, the Notice provides new regulations that when 40/50-year-old employees relocate to another province for a second time, the temporary pension account should be put on hold without transferring contributions record on such account; when such employees are eligible for pension, all pension contributions should be transferred to the place where they receive pension. Such approach is more straightforward and reasonable, where the flow of funds is one-way and definite, and transfer costs and repeated cash-flows into and out of local pay-as-you-go fund pools are much saved.

b. Arrear contributions paid by employers into the temporary pension account should be transferred in full amount

The Notice stipulates that paying arrear contributions into the temporary pension account does not change the temporary nature of the account, and all such contributions paid into this account are transferrable, as means:

On one hand, arrear contributions paid by employers into the temporary pension account should be fully transferred along with the current employer’s contributions. In other words, neither the working place relevant to the arrears nor the current working place where the temporary account locates withholds part of the arrear contributions now paid which will be transferred into the pooled funds of the place where they receive pension.

On the other hand, even though 40/50-year-old employees’ years of payment recorded on the temporary pension account, together with the years of arrears paid herein, may reach 10 years in total, such employees are not entitled to pension at the place where they participate in the new insurance.

3. Place Responsible for Pension Payment

a. For the over-insured, one pension entitlement can be kept while others cleared

The Interim Measures follow the principle of “exclusivity” when identifying the place where an individual can claim pension from. Only when the obligation to make pension payment to an individual falls upon a certain and definite local social insurance agency, individuals’ right to pension is guaranteed. However, in practice, one individual may be covered under more than one pension scheme run by social insurance agencies of different provinces, and receive pensions from more than one agency.

To correct such inconsistence, the Notice provides that “over-insured shall consult with the social insurance institutions to retain one of the pension insurance relationships and continue to receive pension benefits, and the other pension insurance relationship shall be cleared up and the remained fund in the personal account under such relationship shall be refunded to the individual on a lump sum basis”..

b. The place of household register’s “catch-all” responsibility

In accordance with the Interim Measures, for the insured migrating to and employed in another province who are eligible for pension (i.e., reaching the retirement age and the cumulative length of contribution payment is no less than 15 years),if they are working and paying contributions at their places of household register, whether the accumulative payment period at their place of household register has reached 10 years or not, the relevant social insurance institutions at their place of household register is responsible to handle pension payment; if the basic pension insurance is not in their places of household register then, and none of the accumulative payment periods in the places of pension insurance , including the place of household register, has reached 10 years, their basic pension insurance shall be transferred to their places of household register and pension received in such place. It can be seen that the place of household register is the prior and ultimate place responsible for pension payment, and is most likely to be the place of retirement and subject to the personal jurisdiction.

The Notice further clarifies that even when the above insured have never paid contributions at their places of household register, and have not paid contributions at any of their working places for 10 years, the place of household register is still the place to claim pensions from.

Also, the Notice gives opinions on special issues relating to the veteran pension allowances and the cross-province relocation of an enterprise as a whole. Generally speaking, this Notice pays more attention to special groups-related and practical issues in the transfer of employees’ basic pensions, substantiates local governments’ responsibilities, and upholds the principles of safeguarding employees’ pension entitlement accrual and the payment of pensions.