Today, a friend asked about their upcoming retirement in August. They have been contributing to the pension insurance at a 300% tier this year. They wonder if their pension will be calculated based on a contribution index of three.

Pension Calculation Formula.

For retirees who are part of the pension insurance system, the pension mainly consists of two parts: the basic pension and the personal account pension. Some retirees who participated before the establishment of the personal account system for pension insurance or have deemed contribution periods may also receive a transitional pension.

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

If the average contribution index is 3, and the contribution period is 30 years, one can receive 60% of the average social wage of the year prior to retirement.

If the average contribution index is only 0.6, the contribution period would allow for receiving 24% of the average social wage of the year prior to retirement, which indeed shows a significant difference.

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However, pension calculation is not that straightforward. If one contributes at a 300% tier for the last few months, it does not mean that the pension will be calculated as if the contribution index was 3 throughout. That would create a significant deficit in the pension insurance fund.

In reality, the contribution index of an employee is the average ratio of the employee's monthly contribution wage to the average monthly wage of the previous year over the months they have participated in the contribution index calculation.For instance, the calculation of the contribution index in most places begins with the establishment of the individual account system, with the majority starting from 1996. From 1996 to the present is 27 years and 8 months. If we assume that for the first 10 years, contributions were made at the 100% level each month, for the following 17 years at the 60% level each month, and for the last 8 months at the 300% level, the average contribution index would be calculated as (10*12*1 + 17*12*0.6 + 8*3) / (10*12 + 17*12 + 8) = 0.8024. In reality, contributing at the 300% level for these last 8 months does indeed raise the average contribution index, but it does not result in all average contribution indices being calculated as 3.

Expanding the pension calculation formula, if we contribute at the 300% level for a year, we can receive 2% of the average social salary of the year prior to retirement as the basic pension. If contributions are made for 8 months, then it would be 2/3 * 2% of the social average salary.

Of course, some places like Beijing and Shanghai do not start implementing the new annual contribution base limits from January 1st, but rather from July 1st until June 30th of the following year. This situation leads to contributions made at the 300% level in the first half of the year resulting in a calculated contribution index lower than 3.

② Transitional pension. This part varies by province, with Shandong Province as an example.

The transitional pension is equal to the average social salary of the year prior to retirement * the individual's average contribution index * the number of contribution years before the establishment of the individual account * a transitional coefficient of 1.3% (ranging from 1% to 1.4% nationwide).

An increase in the average contribution index also enhances the transitional pension benefits.

③ Personal account pension, which is equal to the balance of the individual's social insurance account divided by the number of months determined by the retirement age.Personal account pension is not related to the average contribution index, but it does indeed reflect the role of paying at a higher level.

The basic pension is paid at a 60% base rate, with an annual collection of 0.8% of the average social wage. The gap in pension benefits is not entirely determined by the contribution level. However, the personal account pension is determined entirely by the contribution base.

For example, assuming the average social wage is 10,000 yuan, with a contribution base of 6,000 yuan, 480 yuan is credited to the personal account each month, totaling 5,760 yuan per year. But if the contribution is made at a base of 30,000 yuan, 2,400 yuan is credited to the personal account each month, totaling 28,800 yuan per year, which is exactly five times as much. Since the number of months for the distribution of the personal account pension is exactly the same, the ratio of the personal account pension is 1:5. This is reflected every month.

Overall, even though we contribute at a 300% level, not all contribution indices are calculated as 3, but it still plays a significant role in increasing the pension. #Top Headline Creation Challenge# #Pension Calculation#