Why Is China Raising Retirement Age For First Time Since 1950s?

China is set to gradually increase its retirement age for the first time since the 1950s, as it faces an ageing population and a shrinking pension fund. On Friday, the top legislative body approved a plan to raise the statutory retirement age for women in blue-collar jobs from 50 to 55 and for women in white-collar jobs from 55 to 58. The retirement age for men will increase from 60 to 63. China’s current retirement ages are among the lowest globally.

According to the plan, which was passed on Friday, the changes will start on 1 January 2025. The retirement ages will be raised incrementally over the next 15 years, according to Chinese state media. Retiring before the statutory age will be prohibited, and individuals will be allowed to extend their retirement by no more than three years, as reported by state news agency Xinhua. From 2030 onwards, employees will need to contribute more to the social security system to receive pensions. By 2039, 20 years of contributions will be required to access pensions.

Decision to increase retirement ages sparks scepticism in China

The Chinese Academy of Social Sciences had warned in 2019 that the country’s main state pension fund would be depleted by 2035. This estimate was made before the Covid-19 pandemic, which severely impacted China’s economy. The decision to increase retirement ages and adjust the pension system was made following a comprehensive assessment of factors such as life expectancy, population structure, education levels, and workforce supply, according to Xinhua.

However, the announcement has sparked scepticism and dissatisfaction on Chinese social media. Some users expressed frustration, predicting further delays in retirement, while others noted that middle-aged workers are facing both pay cuts and increased retirement ages. Some anticipated the change, comparing it to European retirement norms, where men often retire at 65 or 67, and women at 60, seeing this as a likely trend for China.

China’s declining population

China’s population has been declining for the second consecutive year in 2023, as birth rates continue to fall, while life expectancy has increased to 78.2 years, officials reported earlier this year.

A demographic crisis is unfolding in China. The combination of a slowing economy, diminishing government benefits, and the legacy of the one-child policy has created a looming challenge. China’s pension reserves are depleting, and the country is struggling to build sufficient funds to support its growing elderly population. In the next decade, around 300 million people aged 50 to 60 are expected to leave the workforce. This group is almost the size of the US population, raising the question of who will care for them. The answer varies depending on whom you ask and where you look.

China is facing significant demographic changes, having experienced a population decline last year for the first time in six decades, coupled with record-low birth and marriage rates. As of 2021, the Ministry of Civil Affairs reported only 5.04 million elderly-care beds, with 40 million seniors sharing government subsidies worth 53.1 billion yuan (US$7.3 billion).

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Policymakers need to adopt flexible and targeted approaches

Du Peng, vice-president of Renmin University and an adviser to the Ministry of Civil Affairs, last year observed that the trend of postponing retirement ages is global. He emphasized that, given the over 11 million college graduates this year, a uniform delay in retirement age would not be suitable. Instead, he recommended that policymakers adopt flexible and targeted approaches, pointing out that older generations today are often better educated.

Du predicted that China would have nearly 300 million people aged 60 and above this year, with many retiring as early as 50. However, he argued that retirees should not be seen as burdens, but rather as experienced individuals who can contribute to community governance.

According to analysts, more than 28 million people are expected to retire this year, and although the annual number of retirees will decline, it will still exceed 20 million due to the 1960s baby boom. By 2050, over 38 percent of China’s population is projected to be above 60, raising concerns about the state pension fund, elderly care, and healthcare services.

Du noted that increasing birth rates alone cannot resolve the challenges of an aging population, though it remains necessary. At the end of 2022, China had over 280 million people aged 60 and older, nearly one in five citizens, and around 15 percent of the 1.41 billion population were over 65. This demographic shift presents difficulties for China’s already struggling economy, which has been impacted by pandemic restrictions.

He further suggested that China could learn from other countries, citing Germany and Japan’s long-term care insurance systems, which support community-based elderly care. Singapore promotes community involvement by encouraging adult children to live near their elderly parents. He also mentioned that the UK and Ireland offer numerous activities and senior universities for the elderly.

Hukou system must undergo major reforms in China

Increasing the retirement age alone won’t solve the social security system’s issues. A well-functioning social insurance system requires transparent revenue management to build trust among contributors and guarantee future benefits. While the government is beginning to tackle the challenges of a shrinking workforce and an ageing population, merely raising the retirement age without reforming the social security system is inadequate. Age is not always the most reliable predictor of retirement, as adequate pension provisions play a more crucial role.  Analysts say that the emphasis should not solely be on delaying retirement but on ensuring workers trust the system to provide for their future.

Observers say that it is essential for the government to consult workers and collaborate with the ACFTU, so workers have a voice in shaping policies that affect their lives. They recommend that employees and employers jointly negotiate contribution rates and wages, ideally reversing low employer contribution rates. This would help create a fully funded universal pension system that addresses significant disparities among workers, whether urban, rural, or migrants. Moreover, observers state that the discriminatory hukou system must undergo major reforms to ensure equal access to pensions and other social services for all workers, regardless of their migrant or urban status. The government needs to enforce regulations that require employers to provide employment contracts to all workers, ensuring they receive the benefits and provisions they are legally entitled to.

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