The new pension arrangement, which places private and public sectors under the same patterns, will also facilitate talent flows, especially those from the public to private sector.

A stable job and handsome social security benefits are the two major factors that attract many young people to work for the government. Now that the pension advantage, a major benefit, will gradually be phased out, public sector employees find less attraction to stay in the sector.

But the good thing is that the pension reform plan takes some measures to prevent a nosedive of the benefit meted out to government and public institution employees. First of all, their salaries will be raised to cover or even exceed the amount of their pension contribution. Then, a grace period could be offered for some public sector employees, so a soft landing of pension benefits can help prevent a sudden nosedive. Lastly, an occupational annuity will be mandatorily set up in the public sector to give employees better payout after retirement. These are smart moves, as some degree of favorable pension treatment to public sector employees is needed to make sure that talented people are willing to work for the government.

The author is a financial analyst in Shanghai.

Future outlook:

China unifies pension system

Public institutions will have to start contributing 20 percent of employees' salary to their pension fund and develop an annuity arrangement, according to the country's latest reform.

The current dual pension system has reached its final stage, the official website of the Chinese government unveiled. The new reforms are expected to "increase fairness" in the pension system the website wrote.

This is the first time that the public sector has shared a unified pension system with enterprise retirees. According to the guideline, employees of public institutions need to pay 8 percent of their salary as a pension premium.

China has the largest senior population in the world, with 194 million people at or above the age of 60, according to the China National Committee on Aging.

Pension reform was first launched in 2008 as a pilot program in various provinces and municipalities including Guangdong province and Shanghai.