The Chinese Communist Party recently announced a decision to delay the retirement age, hoping to address the issues of depleted retirement funds and shrinking workforce. However, experts interviewed by Reuters have expressed doubts about this move.
On September 13, the CCP swiftly implemented the measure to delay the retirement age without public consultation, changing the retirement age set in the 1950s. Starting from January 1, 2025, the legal retirement age for male and female workers will be delayed by 3 to 5 years from the previous ages of 60, 55, and 58, over a 15-year period, with the retirement age being delayed by 1 month for every 4-month extension.
Experts point out that China is facing challenges of an aging population, slowing economy, and dwindling retirement funds, making the decision to delay retirement age a necessary but insufficient solution.
Due to the CCP’s three-decade-long one-child policy, China is experiencing a significant aging population issue, exacerbating demographic challenges.
According to data, China’s newborn population dropped to 9 million last year. The United Nations predicts that by 2050, China’s working-age population will decrease by nearly 40% compared to 2010.
Alicia Garcia Herrero, Chief Economist for Asia Pacific at Natixis, stated that addressing the pension issue is crucial at this time.
She pointed out that China’s economic growth rate has slowed from around 8% in the early 2000s to about 5% currently, which could further decline to 1% after 2035.
It is expected that by 2035, the population aged 60 and above in China will increase by at least 40%, reaching over 400 million, equivalent to the total populations of the UK and the US.
However, China’s state-led basic pension system is facing significant fiscal pressure. About one-third of China’s provincial-level administrative regions are experiencing deficits in their pension funds. The Chinese Academy of Social Sciences estimates that without reforms, the pension funds may not last until 2035.
The new regulation also stipulates that the minimum years of contributions for workers to receive basic retirement benefits will gradually increase from 15 years in 2030 to 20 years, with an annual increase of 6 months. Local governments are required to actively address the aging population and encourage and support workers in employment and entrepreneurship.
The CCP claims that policymakers are working to address the wide disparities between rural and urban pension schemes to maintain social stability. However, this claim has also been met with skepticism.
Ernan Cui, a consumer analyst at Gavekal Dragonomics, mentioned that the initial fiscal impact of raising the retirement age may be relatively limited as these adjustments are largely voluntary.
“Currently, raising the retirement age may only bring limited fiscal benefits… the upcoming adjustments are essentially optional for many workers, but extending the minimum contribution period required to receive retirement benefits is necessary,” she expressed.
Stuart Gietel-Basten, a professor at the Hong Kong University of Science and Technology, stated that further expanding the contribution timeframe, particularly in the current informal gig economy environment, may make it more difficult for many blue-collar workers to qualify for retirement benefits.
China’s pension system has been based on a three-tier system, with significant disparities between retirement benefits provided to system-employed retirees, ordinary enterprise retirees, and farmers. Typically, farmers receive minimal pension benefits and have to rely on working for a living, particularly after the government forcibly took their land. On the other hand, enterprise workers who have contributed for the minimum required period can choose to retire early under the new regulation and may lack the motivation to delay retirement.
However, this situation benefits officials, as those in positions of authority are reluctant to retire. Officials below the municipal level see a 3-year extension, provincial and ministerial-level officials face a 5-year extension, while central-level officials have an extension of 8 to 10 years, with leadership officials hoping to work for more years.
One netizen commented, “80% of the pension fund is used to support retirees within the system, who previously didn’t contribute a penny, yet receive more benefits upon retirement than anyone else. Even though they began contributing in recent years, it’s still essentially shifting funds within the government budget.”
Amidst the rising youth unemployment rate in China, some netizens mocked the new CCP regulations, saying, “It’s a joke; graduates are already unemployed, so what’s the talk about ‘delaying retirement’?”
John Wang, an analyst at Moody’s, pointed out that due to China’s demographic challenges and income inequality, the new legislation may bring about social risks.