China’s Retirement Age Reforms

By Farah Master
HONG KONG (Reuters) – China’s initiative to raise retirement ages aims to address significant pension deficits and support a dwindling workforce. Economists and demographers warn of further challenges as the economy decelerates, necessitating urgent reforms.

Aging populations are globally prevalent, but China’s situation is exacerbated by its one-child policy, which lasted three decades, worsening demographic issues. Last year, China’s births fell to 9 million, and the UN predicts a nearly 40% decline in the working-age population by 2050 if fertility rates don’t improve.

Both older and younger workers are concerned about the changes, especially regarding discrepancies in pensions between rural and urban areas, public stability, and high youth unemployment. “They need to solve the pension problem now because this is when they still have some growth to finance the deficit,” stated Alicia Garcia Herrero, Natixis’ chief economist for Asia Pacific.

China’s economic growth fell from about 8% in the early 2000s to around 5% currently, potentially dropping to as low as 1% after 2035, according to Garcia Herrero. Concerned about public reaction, Chinese lawmakers expedited the retirement age policy in September without public consultation, altering retirement ages set since the 1950s.

Life expectancy in China has climbed to 78 years as of 2021, up from approximately 44 in 1960, and is expected to exceed 80 by 2050. Premier Li Qiang described the reform as a significant move to enhance China’s social security system and improve people’s livelihoods, according to Xinhua.

However, the state-run pension system faces severe financial strains, with about a third of provinces experiencing pension deficits. The Academy of Social Sciences estimates the pension fund may deplete by 2035 if reforms aren’t enacted.

Monthly urban pensions range between 3,000 yuan ($425) in less-developed regions and about 6,000 yuan in major cities like Beijing and Shanghai, while rural pensions are notably low.

China’s elderly population (60+) is projected to grow by over 40% to exceed 400 million by 2035, equating to the combined populations of Britain and the U.S. Migrant workers, who typically receive inadequate pensions, often continue working into older age, unlike state-sector employees with better pensions, who have fewer reasons to delay retirement.

Starting in 2030, the required contribution period to receive a pension will increase to 20 years from 15. Expanding this timeframe, particularly amid the gig and informal economies, may hinder many blue-collar workers from qualifying for pensions, cautioned Stuart Gietel-Basten from the Hong Kong University of Science and Technology.

The initial fiscal impacts of raising retirement ages are expected to be minimal since the adjustments are largely voluntary, as per Ernan Cui from Gavekal Dragonomics. “Raising the retirement age may entail limited fiscal gain for now… The forthcoming increase will essentially be optional for many, while the extended contribution requirement will not,” she added.

John Wang from Moody’s noted that the legislation may pose social risks due to demographic issues and income disparities, stating, “The success of China’s retirement age reforms relies on managing risks… such as the elderly population’s skills, job availability, and adaptability to technological developments.”

($1 = 7.0465 Chinese yuan renminbi)