A] Prelude*
* For more information about pension systems in general and about the Chinese retirement plans in particular, feel free to visit our dedicated webpages:
https://expatpensionholland.nl/china-expat-pensions
https://expatpensionholland.nl/global-pillars-systems
B] New Policy Required
The ruling Chinese Communist Party has announced plans to raise the retirement age as part of its response to falling births and a rapidly aging population.
Party leader Xi Jinping called on party and government at a recent top-level meeting in Beijing to “advance reform to gradually raise the statutory retirement age in a prudent and orderly manner in line with the principle of promoting voluntary participation while allowing appropriate flexibility.”
Xi also called for moves to “improve the systems for supporting population development and providing related services, refine the policy system and incentive mechanisms for boosting the birth rate, and refine the policies and mechanisms for developing elderly care programs and industries.”
China has one of the lowest statutory retirement ages in the world, currently set at age 60 for men, at age 55 for female officials and at age 50 for female workers.
Retired teacher Gu Guoping, who currently lives in Shanghai, said the authorities are likely to change the mandatory retirement age to 65 for men and 55 for women, which is likely to be unpopular. “The vast majority of people in China don’t want a later retirement age,” he said. “Some men want to retire at 58 or 55.” “If you start to receive [your pension] too late, you’ll only have a short time left to enjoy it,” Gu said.
He added: “Women live longer on average than men, so having them retire at 50 is too soon,” Gu said. “Extending their retirement age to 55 is reasonable and acceptable to most people. But it makes no sense to stop men from retiring at 60 given that they don’t live as long as women.”
C] Increasing Longevity
In the meantime, the authorities are getting people used to the idea of a later retirement by promoting “flexibility” and voluntary approaches, he said.
International medical journal The Lancet reported last year that average life expectancy in China will likely rise to 81.3 years old by 2035, 85.1 years for women and 78 years for men, with the gap widening from 5.2 years in 2019 to 7 years by that time. However, the disadvantage of later retirement is that older people continue to occupy jobs at a time of widespread youth unemployment, according to Gu.
A Beijing resident who asked not to be identified for fear of reprisals said part of the issue is that people currently in work are paying for the pensions of people who are currently retired, making the social security system increasingly top-heavy and unsustainable as the population ages and births plummet.
Raising the pension age to 65 could plunge a lot of people into economic hardship, she said.
“Delaying retirement should be part of a system-wide approach,” she said, saying more jobs for older people would be needed if they can’t collect their pensions until that age.
“Not many people in today’s China stay with the same employer their whole life,” the woman said.
“Once they delay the pensionable retirement age, people will be forced to do odd jobs, change employers and jobs. Measures need to be in place to support this kind of situation, especially when it comes to [preventing rampant] age discrimination,” she said. “Those attitudes are entrenched, and aren’t going to change overnight.”
D] Modest Pension Funding
The Chinese Academy of Social Sciences estimated recently that there will be nothing left in the national pension fund for city-based employees by 2035, while the International Monetary Fund has predicted that a sluggish economy will also impact the pension system.
Some 300 million people are expected to retire in China over the next decade, putting huge pressure on pension funding. While 10 working-age people supported 1 retiree in 2002, the ratio had fallen to 5 to 1 by 2021. It will likely fall further to 4 in 2030 and 2 in 2050, Larry Hu, chief economist at Macquarie, told Reuters in January.
China’s pension system consists of three elements: basic pension, corporate and occupational annuities, and personal pension plans. The economic downturn has reduced people’s ability to pay into the optional elements of that package.
At the end of 2023, only 20% of the 50 million people who have personal pensions had paid anything into them, with the average value of personal pension pots standing at a meager 2,000 yuan (US$275). China’s population aged 60 and over reached 296.97 million in 2023, about 21.1% of its total population, up from 280.04 million in 2022, Reuters reported on Jan. 18.
China created a special fund in 2018 to shift pension funds from richer coastal provinces like Guangdong to places like Heilongjiang and Liaoning, to tackle cross-country disparities, yet about a third of China’s provincial-level jurisdictions are running pension deficits, the agency reported.
E] Conclusion
China faces the retirement funding issues almost every other nation has. Special about the Chinese situation is the (very substantial) difference between the retirement age for men and women and even more so that the current retirement age for women is very low from an international perspective.
The options to extra invest with tax benefits by means of private pensions has been introduced not that long ago and with some enthusiasm. A shame that many people are just not able to invest in such a manner.
As they say in China: ‘May you live in interesting times!’