One of the unheralded successes of the last decade has been the development of China's social security system. The nationwide social security system was in its infancy in 2002, with participation mainly limited to workers from the State-owned enterprise sector. The numbers in the main enterprise pension scheme then had hardly reached 100 million compared with 284 million today. And people in the urban medical scheme in 2002 were barely 15 percent of the 2011 total of 473 million.

Expenditures in 2002 were similarly low with pension and medical insurance payouts being about 20 percent and 10 percent of the 2011 total. The vast majority of the workers, let alone the rural labour force, were not covered and had virtually no protection from the catastrophic risks of ill health and industrial injury.

Fast forward to 2012, and the picture becomes very different. The right of workers to social security are enshrined in the Social Insurance law. In terms of numbers, the Chinese social security system is the biggest in the world with more than 90 percent of the population being part of at least one scheme.

The government has added two major schemes for rural residents - health (2003) and pension (2009). Besides, urban residents not in employment - children, students and the elderly who never managed to have a salaried job - now enjoy important protection from the most critical of illnesses. About 330 million people are now part of the rural pension scheme. Protection is partial of course - households and individuals still need to have significant savings to fund insurance co-payments and pay for drugs and devices not on the approved official lists. And for pensioners who want to have a comfortable retirement, a government pension plan paying less than 50 percent of average salary is hardly sufficient.

But the greatest triumph of the last decade and conversely its greatest danger is that citizens now have expectations. Young workers look to companies to enrol them in social security programs not only because they have started thinking about retirement but also because it is mandatory for migrants to be paid-up members to get their feet on the local housing ladder. Even housemaids are asking their foreign employers to pay social security contributions.

At the national level, social security topped people's concern in the last two years from being the fifth or sixth main issue just five years ago. That is a mark of great achievement, not failure.

In the United States, unless there is major surgery to the federal medical and pension schemes, social security is projected to take 70 percent of the government budget (from its current 30 percent) by 2040. China may be a long way off from that position but it's moving there fast. It entered the aging society period in 1999 when 10 percent of its population became at least 60 years old. In 2012, the proportion of elderly people is close to 15 percent and rising fast. About 3 million people are retiring every year and the number of people in their 80s, who often require the most intensive support, is rising by more than 1 million a year.

For most of the past decade China has experienced not a demographic dividend, but a participation dividend as millions of workers not previously enrolled joined as contributors, swelling the contributor-retiree ratio even as the number of retirees has risen sharply. But the total workforce will peak next year, after which the contribution dividend will start declining.

So the new leadership cannot put off taking measures on retirement age. It needs to strike early and fast - perhaps the next National People's Congress - by raising women's retirement age to that of men before 2015.

After that, the retirement age should be automatically raised every year so that by 2025 it would be over 63. At the same time, the minimum contribution period for a full pension needs to be raised to 35 years and, for equity reasons, civil servants should be made to pay higher contributions. These changes will begin to defuse the worst financial impacts of the demographic time bomb.

But policy changes alone will not be enough. The technical management of changes also needs to be improved.

For years local authorities at all levels have jealously protected their rights to manage and invest in their own pension funds and, as a symbol of their sovereignty, resisted all central government efforts at real "unified" pooling. This policy stance can no longer be supported.

With many local governments suffering real revenue pressure because of falling housing markets, existing surpluses need to be fully pooled, and properly invested. For more than 10 years the National Social Security Fund has been growing its reserve funds steadily through a cautious but gradually more ambitious investment strategy.

Now provincial governments need to be given the same freedom, under central supervision, to realise the same benefits. Large reserve funds that are sensibly managed will not reduce the costs of retirement, but will help ease the burden for the next generations of workers.

Finally the youth need to be educated in the benefits of investing in their own retirement and persuaded to act on it.

The government implemented the Enterprise Annuity Scheme in 2004 to introduce a standard company pension scheme for the evolving private sector. But after a good start participation in recent years has stagnated.

Enterprise annuities need to be revived by sensible tax incentives to companies and individuals, and a more permissive investment regime, but most of all by making pension rights individual and transferable. China expects its young workers to be very flexible. Its workers have the right to expect nothing less of its pensions policy.

The author, based in Kuala Lumpur, is an international financial consultant and former fund management expert on the EU-China Social Security Project.