Recently, the “renewal loan” of Tian’e Rural Commercial Bank in Hechi City, Guangxi has attracted social attention.
The renewal loan is designed to help flexible employment workers and urban and rural residents with difficulties who are approaching the age of receiving pension benefits to solve the problem of continuing to pay basic pension insurance. Under this model, banks provide loans to disadvantaged groups to pay social security fees, and when they start to receive pensions, they will repay the loan principal and interest at a certain ratio from the pensions.
Hechi City launched this product as early as September 2023. It is understood that the maximum loan amount of Tian’e Rural Commercial Bank’s “Renewal Loan” is 80,000 yuan, the annualized interest rate is 3%, and the longest loan period is 10 years. There is no need to repay the principal before receiving the pension, and then repay the principal and interest at a rate of no less than 65%-80% of the pension every month. Data shows that as of January 26, 2024, 264 people in the city have applied for a total amount of 2.7639 million yuan, and loans have been issued to 214 people. In April this year, Guiping City, Guangxi also launched this product.
It can be seen that the interest rate of renewal loans is relatively low. For example, the interest rate of Guangxi Jingxi Rural Commercial Bank is 3.25%, while the annualized interest rate of Hechi Tiane Rural Commercial Bank is 3%.
The application process for a renewal loan usually includes the following steps:
- Qualification review: Applicants need to meet certain conditions. For example, in Jingxi City, Guangxi, applicants are usually people who are preparing to receive a pension but have not paid their basic pension insurance.
- Application at a cooperative bank: The applicant submits a renewal loan application to a bank that cooperates with the local social security center.
- Loan approval: The bank evaluates the applicant’s credit and repayment ability and approves the loan.
- Loan disbursement: Once the loan is approved, the bank will disburse the loan to the applicant, and the funds are usually used directly to pay pension insurance premiums.
- Repayment of loan: After the applicant starts receiving pension, the agreed proportion will be deducted from the pension every month to repay the principal and interest of the loan.
It should be noted that renewal loans are earmarked for specific purposes and can only be used to pay basic pension insurance premiums. They cannot be withdrawn in cash or used for other purposes.
Industry insiders believe that this product has attracted public attention because of the recent gradual delay of the statutory retirement age plan: starting from 2025, it will take 15 years to delay the statutory retirement age of male employees from 60 to 63, and for female employees from 50 and 55 to 55 and 58, depending on the type of work. Starting from 2030, the conditions for employees to receive pensions will also change, and the minimum payment period will be gradually increased from 15 years to 20 years.
“The launch of the renewal loan is an innovative attempt that helps solve the social security payment problem of people in difficulty and has certain positive social benefits. It can not only attract flexible employment personnel to pay social security and increase the proportion of people who will receive stable income in the future, but also because of the ‘post-enjoyment’, that is, repayment will not begin until the pension is received, so the possibility of loan default is smaller, reducing the risk of banks.” said the above person.
Some people also question the significance of renewal loans.
“Flexible employment groups with disadvantaged conditions often choose to stick to the minimum payment standards and payment years, resulting in a low basic pension amount after retirement. With Guangxi’s current social average and base, flexible employees who are now retiring after the minimum payment period of 15 years can only receive a pension of no more than 1,600 yuan. Taking into account the continuous increase in the social average and base, we will increase the pension standard for flexible employees in Guangxi who retire after 15 years of payment in six years to 2,000 yuan per month. According to the rules, those who apply for “renewal loans” need to pay at least 1,300 yuan of the basic pension of 2,000 yuan per month to repay the principal and interest. In the six years after retirement, the person concerned will only have 700 yuan left after monthly repayments, which is not enough for daily expenses.” An industry practitioner calculated.
This means that in the first six years after retirement when repaying the loan, the person must obtain additional income to maintain basic living, which means “retirement but not rest.”
Some experts pointed out that renewal of secured loans requires borrowers to carefully consider factors such as the loan amount, term, interest rate, etc., calculate how much of their pension they need to use to repay the loan, and make prudent decisions.
“If the period of suspension of payment is long and the loan amount is relatively large, the borrower may not have much pension left every month after deducting the repayment amount, affecting the quality of life in old age.” Therefore, experts suggest that the policy level should further optimize the social security payment policy for flexible employment personnel and consider providing interest subsidy support for such loans.
(This article was first published on Titanium MediaAPPauthor｜Sun Cheng, editor｜Liu Yangxue)
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