In October 2024, the end of the 10-year transition period for government and public institution employees is marked. After the conclusion of this transition period, the pension calculations for employees of government and public institutions will be entirely based on new methods, with the additional provision of transitional pension benefits. How exactly are these calculated?

Changes before and after the 10-year transition period.

The 10-year transition period typically refers to the period from October 2014 to September 2024. During this time, retired personnel from government and public institutions (including both mid-career and new employees) will have their retirement benefits compared between the new and old methods.

If the old method results in a higher retirement benefit, it will be paid out according to the old method. In fact, the retirement benefits under this scenario are also composed of a basic pension and an occupational annuity. If the retirement benefit under the old method is 6,000 yuan, with an occupational annuity of 500 yuan per month, the basic pension would then be 5,500 yuan per month.

If the new method results in a higher retirement benefit, a certain percentage higher than the old method will be paid out, in addition to the old method's retirement benefit. For those retiring between October 2024 and December 2025, the payment ratio is 10%. For each year delayed in retirement, the ratio increases by 10 percentage points. For those retiring between January 2024 and September 2024, the payment ratio is 100%.

Advertisement

In essence, starting from January 2024, as long as the new method results in a higher retirement benefit, the retirement benefits will be paid out according to the new method.

The new method of retirement benefits consists of two main parts.

Firstly, the basic pension, which is calculated according to a formula composed of three parts: the basic pension, the personal account pension, and the transitional pension.

The basic pension formed after the implementation of the social insurance system in October 2014 is composed of two parts: the basic pension and the personal account pension. The continuous service period before October 2014 is considered as deemed payment years, and the retirement benefits are composed of the basic pension and the transitional pension according to regulations.Basic pension, by combining the benefits of two parts of the contribution period through the average contribution index and contribution years.

① The basic pension is equal to the social average wage of the year before retirement × (1 + the individual's average contribution index) ÷ 2 × contribution years × 1%.

Although the calculation form is the same as that for enterprise retirees, the actual values are quite different.

The average contribution index is derived from the average of the actual contribution years' average contribution index and the deemed contribution years' deemed contribution index. For example, if the actual contribution is 10 years with an average contribution index of 1.5; and the deemed contribution is 30 years with an average contribution index of 1.7. The average contribution index equals (10 × 1.5 + 30 × 1.7) ÷ (10 + 30) = 1.65.

This is effectively equivalent to the pension generated by an enterprise employee with 40 years of service, contributing at an average level of 165%.

② The personal account pension = the accumulated balance of the personal account since October 2014 ÷ the number of months determined by the retirement age.

The balance of the personal account for the pension insurance is recorded at 8% of the contribution base each month and calculated annually according to the interest rate published by the state.

As for the number of months determined by the retirement age, it is 195 months for the age of 50, 170 months for the age of 55, and 139 months for the age of 60.③ Transitional pension = Retirement year's average social wage × Personal deemed contribution index × Personal deemed contribution years × Provincial transitional coefficient.

The transitional coefficient is generally consistent with the transitional coefficient for enterprise retirees in the province.

The deemed contribution index is mainly calculated based on the deemed contribution index table set by the province, referring to the position level and job salary at the time of retirement, and combined with the local retirement subsidy situation. If there is a promotion in rank before retirement, the deemed contribution index can generally be increased, which is also in line with the principle of past retirement benefits.

Secondly, there is the occupational pension. The calculation method for the occupational pension is generally the same as that for individual account pensions, but it is also possible to purchase commercial life insurance. The advantage of purchasing commercial life insurance is that it can be received for a lifetime, but the standard of payment will be lower.

The proportion of personal account contributions for the occupational pension is 12% of the contribution base, with 4% from the individual and 8% from the employer.

If the occupational pension is withdrawn monthly, it will be taxed according to the taxable income for personal income tax, with a tax rate of 3% for amounts within 3,000 yuan. If the balance of the individual account for the occupational pension is exhausted, this part will no longer be available. Generally, it can be received for more than fifteen or sixteen years.

In summary, the above is the new method for calculating the pension benefits for government and public institution employees after October 2024.