Several rural banks in China’s central Hunan province have suspended targeted personal loan services designed to help low-income residents cover unpaid pension insurance premiums, following growing concerns about their risks and appropriateness, the Beijing News reported Tuesday.

The loans marketed in June allowed near-retirement individuals, typically aged around 60, to borrow up to 90,000 yuan ($12,500) to make lump-sum payments covering past underpayments or to switch to higher contribution tiers under the rural pension scheme. Repayment periods span up to 15 years at interest rates ranging from 3.1% to 3.45%. One bank reportedly issued loans totaling 30 million yuan.

Banks promoted the loans as a way to boost future pensions, targeted at farmers and gig workers who often have irregular incomes and lack sufficient pension savings. Repayments were automatically deducted from the monthly pension payouts under pre-authorized agreements.

Shaoyang Rural Commercial Bank offered pension loans with an annual interest rate of 3.1%, capped at 90,000 yuan and repayable over 15 years through monthly installments of 625 yuan. Under current policies, borrowers who retire at 60 would receive 808 yuan in monthly pension payments, leaving 183 yuan after loan repayments.

China’s rural pension system differs fundamentally from urban employee programs in that it lacks employer contributions, creating structural disadvantages for farmers. Most elderly farmers enroll late in the scheme, accumulating years of contribution gaps while typically selecting the lowest payment tier. This heavy reliance on minimal individual contributions results in meager pensions, often below 200 yuan a month, that fail to meet basic needs. 

As they approach retirement age, many rural residents — whether enrolling in the pension program for the first time or making up for missed contributions and upgrading payment tiers — face substantial one-time payments totaling tens of thousands of yuan, a significant burden for those with unstable incomes.

Zhou Yiqin, a financial policy expert, told the Beijing News that while such loans help some borrowers cover immediate pension contribution gaps, the long-term trade-off is a diminished retirement income.

Although the government has attempted to address this through initiatives like this year’s 500 billion yuan “service and pension relending” program, the controversial practice of pension loans highlights systemic challenges in achieving retirement security for rural populations.

The loans also raise concerns about repayment risks and regulatory compliance, with experts noting ambiguity under China’s personal loan regulations, which require clear “consumption or production” purposes. Using loans for social security payments falls into a gray area.

In addition, the service carries several risks, including borrower default, early mortality, and policy risk from shifting pension regulations, Zhou said.

China has a rapidly aging population, driving urgent pension needs, yet basic coverage remains inadequate, said Dong Ximiao, chief researcher at Shenzhen-based Zhaolian Finance. He urges flexible regulation to enable low-income groups to more easily access retirement security.

A study published last year highlighted labor disparities between urban and rural residents, with the latter tending to retire significantly later than their urban counterparts, despite generally worse health. Women in the countryside often work beyond the age of 65, while men work up to the age of 70 — far past the revised retirement ages of 55 or 58 for women, depending on their profession, and 63 for men, which took effect in 2025 as part of China’s gradual pension reform over the next 15 years.

As of mid-July, local banks such as Shaoyang Rural Commercial Bank and Changsha Rural Commercial Bank have withdrawn promotional materials for targeted personal loans and stopped accepting new applications, though existing contracts remain valid.

Editor: Tom Arnstein.

(Header image: VCG)