The Chinese Communist Party has proposed the “delayed retirement” plan for over a decade, but due to significant controversy and divergent opinions, progress has been slow. Last month, the CCP announced for the first time the reform principles for delayed retirement, intensifying expectations for the policy to be implemented.
Experts analyze that delayed retirement faces two major pressures, including a significant increase in unemployment rates, putting China into an extremely vicious cycle, which will likely worsen the economy in the future.
Against the backdrop of accelerating aging crisis in China’s population, the recently released Article 46 of the third plenary session of the CCP proposes to gradually reform the statutory retirement age through voluntary and flexible principles. This is the first time that the CCP leadership has included “voluntary, flexible” as principles for delayed retirement reform.
The Article also states that by 2029, the “reform tasks proposed in this Article will be completed.”
The CCP’s statements have sparked public attention and various interpretations, particularly concerning the timing of the implementation of the delayed retirement reform. Sun Guoxiang, Associate Professor in the Department of International Affairs and Business at Nanhua University in Taiwan, told Epoch Times, “In my personal prediction, before 2025, China (the CCP) will introduce more concrete policy proposals, possibly conducting pilot programs in certain industries or regions. The actual nationwide implementation may be between 2025 and 2030.”
As early as November 2013, the CCP first proposed “gradually increasing” the retirement age at the Third Plenary Session of the 18th Central Committee, sparking intense debates, but progress has been slow. In March 2015, the then Minister of Human Resources and Social Security, Yin Weimin, stated that the delayed retirement plan would be formulated that year, “We will first announce the plan, but its implementation will take at least five years.” However, it was not until October 2020 that delayed retirement was included in the CCP’s “14th Five-Year Plan” (2021-2025). With the recent introduction of the “voluntary, flexible” principles, the delayed retirement plan has been delayed by 12 years.
Chinese-American economist Li Hengqing of the U.S. Institute for Information and Strategic Research believes, “They (the CCP) are definitely evaluating it now, as it has been delayed for a long time due to immense pressure. So, they (the CCP) have been hesitant to act (on promoting delayed retirement). If they wanted to act, they would have done so earlier.”
“The recent (delayed retirement) agenda being brought up only indicates that recent circumstances have forced the central government of the CCP to act. If they continue to do nothing (the problem will worsen). Right now, the pension and social security funds are in such a deficit, they are completely in the red.,” he said.
Sun Guoxiang also believes that the CCP seems compelled to act this way. If they do not act now, regardless of the situation of aging population or pressures on the social security system due to reduction in the workforce, the burden of pensions and medical expenses may be too heavy for mainland China to bear in the future.
China’s pension system operates on a “current generation supporting the previous generation” model. According to the International Monetary Fund (IMF), in the next 30 years, China’s working-age population will decrease by approximately 170 million, while the population aged 65 and older will increase to nearly 380 million, corresponding to a continuous decrease in the population base contributing to pension payments, while the number of retirees drawing pensions is rapidly increasing, exacerbating the pension shortfall. As early as 2019, Wang Zhongmin, former Deputy Director of the National Social Security Fund Council of China, publicly stated, “Currently, the balance of social security funds is 5 trillion yuan, and will be depleted by around 2025, practically exhausted.”
Delayed retirement is seen as a way for the CCP to delay the current pension depletion crisis. However, the delayed retirement plan faces a major challenge: the younger generation is suspending their social security payments due to unemployment and lack of confidence in the future economy.
Li Hengqing points out that the pressure on young people in China to pay social security contributions is very high now. “There are over ten million recent graduates, with the majority of them being unable to find jobs, which is a significant proportion. But once they find a job, they are required to immediately pay into the so-called “five insurances and one fund” (social security contributions). They may feel that by the time they retire, the money (social security contributions) will be gone, spent.,” he said.
Mr. Li, working in Guangdong, told Epoch Times, “Young people paying social security contributions are paying for the current elderly, which they definitely won’t benefit from in the future, without a doubt, who would be willing to pay then?”
The level of pension and social security contributions in China is also remarkably high. According to Professor Bai Chong’en of Tsinghua University, China’s social security contribution rate ranks first among 181 countries globally, approximately twice the average level of the other three “BRICS” countries, three times that of the Nordic Five, 2.8 times that of the G7 countries, and 4.6 times that of its East Asian neighbors.
Another significant pressure faced by delaying retirement is that it will further exacerbate the unemployment crisis. Sun Guoxiang believes that China’s current high unemployment rate faces serious negative impacts in the short term. Delayed retirement means that older workers will stay in their positions longer, “It may cause significant short-term impacts, meaning the current unemployment rate will increase significantly.”
China sees around six million people approaching retirement age each year. If retirement is delayed, it will take up positions for at least six million working age individuals. Meanwhile, China’s economy is currently on a continuous decline, with several research institutions estimating that for every one percentage point decrease in GDP, approximately one million job opportunities are lost.
Li Hengqing says, “Currently, the employment market in China is exhausted; you may have a strong desire to work, but there are no vacancies available.”
“In this situation, it actually increases the pressure of unemployment and the economic burden on the unemployed population, so one could say the whole society is in a state of extreme panic or resentment.”
In recent years, there has been a significant exodus of foreign companies from China, numerous bankruptcies of private enterprises, and an influx of unemployment across various industries. Many of the unemployed are over 40 years old and find it challenging to find new employment. A considerable number of individuals between 50 and 60 years old are now without income. Many rely on savings to get by, hoping to make it to 60 and receive a pension.
Mr. Li in Guangdong stated, “Now, when you’re 35 (enterprises consider you old) and you’re already without a job, (the government) expects you to wait until you’re 65 before you retire; only the Communist Party has such logic.”
Although the CCP officially mentions the retirement ages of various countries like the UK, Canada, Australia, and the US while introducing the “gradual retirement age reform” plan, they overlook a crucial point: countries like the UK, Canada, and Germany have unemployment insurance and various social welfare measures, ensuring that the lives of the unemployed are not severely impacted.
China is ushering in a massive “retirement wave.” According to a research report from Everbright Securities, in 2022, the total number of retirees in China will be 340 million. The total number of births in China between 1962 and 1975 was 370 million, which will drive a massive “retirement wave” between 2020 and 2035. If a gradual retirement age increase of 65 is implemented from 2025 to 2055, it will reduce the peak number of retirees by one billion.
If delayed retirement is implemented, two groups will be significantly affected. The first group is those born in the 1970s nearing the “60 years old retirement” age. Sun Guoxiang indicates that these individuals are close to the current retirement age, “They are in the middle of their careers, and delayed retirement could mean they need to reconsider their career plans and savings strategies.”
“They may have to invest more time and energy to cope with a longer career. Especially if they are already facing challenges in terms of health or work pressures, the impact would be most severe.,” he added.
The second group affected is the group of flexible employees who secure retirement benefits by independently paying social security contributions, for whom delayed retirement offers no benefits.
Li Hengqing said, “Originally, the government forced them to pay social security contributions, promising that they could start receiving pension at 55. He calculated accordingly. But suddenly they were told they have to continue to pay for three more years; otherwise, they will end up with nothing at all. What do you think the impact is on them? It’s significant, so they have no choice but to work to support their families.”
In China, the population of flexible employees now exceeds 200 million. Everbright Securities’ report shows that elderly re-employment is more concentrated in life service industries with high labor demands and low added value. They are mainly self-employed or part-time workers.
Regarding the delayed retirement pushed by the CCP amid the current economic downturn in China, Sun Guoxiang stated, the delayed retirement plan is a double-edged sword; the mainland of China seems reluctant to go all the way. In the short term, it has a negative impact, leading to a significant increase in unemployment rates. In the long term, it may also play a role in mitigating the challenges of labor aging and alleviating the pressure on pension funds. Still, this approach is more in line with Western countries’ thinking, and it poses significant challenges to the Chinese economy given its unique circumstances.
Li Hengqing believes that this will push China into an extremely vicious cycle, further deteriorating the economy.
He said, “The economy is already in a terrible state; the common people have lost hope, they see a large number of unemployed people, colleagues, neighbors, schoolmates who have no job opportunities, and the income pressure is significant. Seeing that their retirement funds, which they expected to receive next month, will be postponed for three more years, and they must save for retirement, they dare not consume, making the economy worse.”
Delayed retirement could also spark significant public backlash. In 2020, a retirement pension reform plan in France sparked prolonged transportation strikes, forcing the government to shelve the proposal.