The State Council, or cabinet, announced the changes on its website after a meeting chaired by Premier Wen Jiabao on Tuesday.

China has been trying to improve its social security system to encourage people to spend more money rather than save for their retirement and future medical expenses.

State pension payments for retirees will be increased by an average of 120 yuan ($18) per month from the start of 2010, the statement said.

Rural and urban workers also will be allowed to transfer their pension accounts when they find new jobs or move to other provinces, it said.

Workers previously could only transfer their own pension contribution, not the part paid by their employer.

Only a fraction of the country’s 1.3 billion people are covered by social security.

At the end of last year, 219 million people received a pension and about 317 million had basic medical insurance, the official Xinhua news agency said.

About 124 million had unemployment insurance and 138 million had work injury insurance, Xinhua said.

Source : Konaxis

This is especially true when employees come from different cities in China or have different working locations.

There are six categories of social security in China. They are:

• pension
• medical insurance
• maternity insurance
• unemployment insurance
• accident insurance
• critical illness insurance

As a general rule, employers should make a contribution to each of these types of social security on behalf of their employees. Employees are also required to make contributions to some of them. The contributions are set as a percentage of average monthly salary.

Because the funds are administered by divisions of local governments, the percentages that should be contributed by employee and employer differ depending on the town in which their employees are resident. In China this is known as the person?s hukou. Therefore the social security contribution that the employer should pay on behalf of two employees earning the same salary, one from Shanghai and one from neighboring Kunshan for instance, can be quite different. Similarly, the amount of individual income tax paid by these two employees will also be different, as social security contributions made by the employee are deductible against tax (up to a certain limit).
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