A research report has warned that the shortfall in China's pension fund will become a major problem and continue to escalate in the next 10 years if reforms are not undertaken to rein in the deficit.
The report was co-authored by research teams from Fudan University and Bank of China (BOC).
Liao Shuping, a researcher with the BOC, told the Economic Information that according to their estimates, the shortfall in pension funds will reach 18.3 trillion yuan ($2.87 trillion) in 2013, and rise to 68.2 trillion yuan in 2033, accounting for 38.7 percent of GDP.
Ma Jun, an economist with Deutsche Bank and a leading author of the report, wrote in an article that the shortfall may make up 80 percent of GDP in 2050.
The study indicates that if reforms aren't carried out, the pension system will become a huge fiscal burden on the country. The system will require growing fiscal subsidies starting from 2017, which would take up more than 20 percent of the country's fiscal spending in 2050.
The report attributed the shortfall to the cost of restructuring the pension system in the short term, and the aging population in the medium and long term.
The report follows heated discussion of a government proposal to extend the retirement age that emerged earlier last week.
The Ministry of Human Resources and Social Security revealed that it would raise a proposal concerning a more flexible pension system at the proper time to keep a balance between employment and an expected shortfall in pension funds.
Most men in China retire at 60, women officials at 55 and workers at 50. Almost every employee has an individual pension account, into which both the individual and the employer must make monthly contributions.
Despite widespread public opposition, most experts rallied behind the proposed extension of working years.
The study suggested raising the retirement age by one year every five years after 2020. It noted that by hiking the retirement age by seven years, the workforce population would climb by 25 percent, and the retiring population would drop by 28 percent.
Zheng Bingwen, director of the Center for International Social Security Studies at the Chinese Academy of Social Sciences, told the Global Times that by extending the retirement age by one year, the pension fund would increase by 4 trillion yuan, save 16 trillion yuan in its spending, and cut the shortfall by 20 trillion yuan.
However, the study also noted that hiking the retirement age alone wouldn't help overcome the pressure brought by an aging population, calling for further reform in the system.
It proposed supporting the social security system with bonuses generated by shares of listed State-owned Enterprises.
The study estimates that if reforms are taken in 2013 to gradually inject 80 percent of State-owned shares into the social security system and raise the retirement age, the pension system could balance expenditure in the next 30 years.