China will implement a national strategy to cope with the aging population by gradually delaying the statutory retirement age, which has not been adjusted for decades, in order to address the growing gap in the social security fund account caused by the increasing aging of the population and the decreasing share of social security contributions each year.
Delaying the statutory retirement age is a must
Chinese Premier Li Keqiang pointed out in his 2021 government work report on March 5 that he would “implement a national strategy to actively cope with the aging population” and gradually delay the statutory retirement age.
The Chinese Communist Party (CCP) authorities proposed on Nov. 3 last year in their 14th Five-Year Plan and Vision 2035 to “implement a gradual delay of the statutory retirement age,” and this Time again emphasized that delaying the retirement age is one of the key agenda items in China’s economic development.
You Jun, vice minister of the Ministry of Human Resources and Social Security (MHRSS), said at a press conference on Feb. 26 this year that China’s current retirement age is generally low, does not match the Life expectancy per capita, is not suitable for the change in population structure and the development trend of aging, and is not suitable for the change in labor supply and demand, resulting in a waste of human resources. The Ministry of Human Resources and Social Security “is currently working with relevant departments to study the specific reform plan”.
China’s current legal retirement age is generally set at 60 for male workers, 55 for female cadres and 50 for female workers. This retirement age was set in the early 1950s in China based on factors such as per capita life expectancy, which was around 40 years old at the time, but in 2019 China’s per capita life expectancy has increased to 77.3 years and urban residents are over 80 years old, making it necessary to delay the statutory retirement age, said You Jun, vice minister of the Ministry of Human Resources and Social Security.
Social security fund gap increases
Demographer and senior scientist at the University of Wisconsin-Madison, Dr. Fu-Hsien Yi. (Courtesy of myself)
In an interview with Voice of America, researcher Fuxian Yi, a demographer at the University of Wisconsin-Madison and author of “The Great Empty Nest,” said that when China established its retirement system in the 1950s, the demographics were young, the labor force was abundant, and the number of people on social security was small. However, decades later, the demographic structure has changed significantly, with Family planning leading to an increasingly aging demographic, a steady increase in the number of social security recipients, and a gradual decrease in the number of social security contributors, which has created a significant burden on the current social security fund, and even a shortage, requiring the central government to provide additional funds to cover the shortfall. The central government has to provide extra money to fill the gap of insufficient funds, so it is necessary to delay the statutory retirement age.
He said, “Due to the family planning policy, which has led to a reduced workforce and accelerated aging, the pace of aging is the fastest in the world, we are getting old before we get rich, and the social security fund gap is getting bigger and bigger, and this is very troublesome.”
The “Research Report on the Third Pillar of China’s Pension Fund” released by the China Insurance Association on November 20, 2020 predicts that “China is expected to have a pension gap of $8-10 trillion in the next 5-10 years, and this gap will further expand over time.” As a result, there is widespread concern that as Chinese life expectancy increases, the current state of the social security fund deficit, caused by more people receiving social security at the current retirement age year by year and, at the same time, fewer people paying social security contributions, is bound to become more pronounced.
In an interview with the Chinese media Caixin Time last November, Lou Jiwei, former Chinese finance minister and chairman of the Social Security Council, admitted that the aging population is intensifying and the gap in the social security fund is getting bigger, and the central government has to increase subsidies for the gap in the social security fund account in terms of general expenditure. Therefore, postponing the retirement age, paying more, and finally getting more, as well as improving the efficiency of the collection and management, and the national coordination, and entrusting the Social Security Fund Council to invest the phased balance, can solve the problem of China’s widening pension gap.
The “one increase, one decrease” of the population
China’s aging population is becoming more and more serious, and the number of working-age people is decreasing year by year, which is the main reason for the growing gap in China’s social security fund. You Jun, vice minister of the Ministry of Human Resources and Social Security, said in February that by the end of 2019, the proportion of China’s population aged 60 and above will exceed 18 percent, and will exceed 300 million people during the 14th Five-Year Plan, entering a stage of moderate aging. At the same time, he said, China’s working-age population has been declining over the past decade, with an average annual decrease of more than 3 million since 2012, and will drop by another 35 million during the 14th Five-Year Plan.
Zheng Dongliang, director of the Institute of Labor Science at the Ministry of Human Resources and Social Security, predicted last year that China’s working-age population will decrease more annually after 2020, from a peak of more than 900 million in 2011 to about 700 million in 2050.
Data from a study by U.S. demographer Yi Fu-hsien predicts that China’s aging population (the percentage of people aged 65 and older) will surpass that of the United States and the United Kingdom in 15 years. He says that in 2020 China is 14% (US 17%, UK 19%), by 2035 China will be 25% (US 22%, UK 23%) and in 2050 China is expected to account for 35% (US 23%, UK 26%).
Another set of data studied by Dr. Fu-Hsien Yi shows that while China is aging, the number of people in the labor force who pay social security contributions and bear the pensions of retirees is decreasing. The ratio of active workers to retirees is 4.9 to 1 in China in 2020 (3.5 in the US and 3.1 in the UK), 2.4 to 1 in China in 2035 (2.6 in the US and 2.4 in the UK), and 1.6 in China in 2050 (2.4 in the US and 2.1 in the UK).
From the above data, China’s aging population will be much more serious after 2035 than in developed countries such as the U.S. and the U.K. Meanwhile, the ratio of elderly people receiving pensions to the labor force paying social security contributions will shrink significantly, said Yi Fuxian.
China’s current pension system, like many countries around the world, is a “pay-as-you-go” system, which means that “the contributions of the generation that is working at the same time are used to pay for the pension of the generation that has retired. The essence of this system is “intergenerational support”, i.e., “the son pays the father and the grandson pays the son”.
Dong Keyong, secretary-general of the China Pension Finance 50 Forum and a professor at the National People’s Congress of China, told Xinjing News last month that China’s increasing aging, along with the gradual trend of fewer children, is bound to put enormous pressure on the “pay-as-you-go system” and create a funding gap in the accounts. In 2019, fiscal authorities at all levels subsidized the basic pension insurance fund by about 1.32 trillion yuan, he said.
Retribution for the consequences of “one-child”
China canceled its 35-year-old “one-child” policy in January 2016. Previously, Chinese family planning officials had said that China had under-born about 400 million people during the decades of family planning.
By liberalizing its population policy, China hopes to address the growing problem of aging and the lack of a successor workforce. But China’s birth rate and natural growth rate hit a 10-year low in 2019.
Researcher Yi Fuxian, a demography expert and author of the book “The Empty Nest in a Big Country,” said that although China has abolished one-child rule, decades of family planning have changed people’s Perception of fertility. And the pressure to live a stressful life, with factors such as housing and Education, has not spawned an increase in the birth rate because of the liberalized population policy.
There are two other special circumstances in mainland China, one is the change in people’s fertility concept due to family planning; the other is that the whole economic and social pattern is planned for the one-child policy, and this is difficult to change,” he said. So, China’s fertility rate should be very low.”
Professor Xie Tian, Chair of the Aiken School of Business at the University of South Carolina, pointed out that China’s economic structure, such as family planning, has caused China to “grow old before it gets rich” and the gap in the existing social security fund has widened, mainly because most of the benefits are divided and taken up by vested interests. The serious consequences of China’s one-child fertility policy, which has been in place for decades, have finally emerged.
He said, “The Chinese Communist Party’s family planning policy has been in place for so many years, and although it has now been abolished, young people are now reluctant to have more children due to rising prices, housing prices, and medical and education costs in the cities. Originally, China’s ‘one-child’ policy led to a decrease in the number of young people. Now because of the high prices of goods leading to the reluctance of young people to have children, China’s demographic structure has also become more and more irrational, exacerbating the problems caused by aging.”
Professor Xie Tian also said that the increase in China’s pension expenditure, especially the massive occupation of China’s privileged class, as well as the poor supervision of social security funds, and even cases of corruption such as misappropriation and theft, will inevitably lead to the social security funds not being able to cover their expenses and the gap increasing.
How do the people think about postponing the retirement age?
Although the current retirement age in China is significantly lower than that of the United States and the United Kingdom, which is 66 years old, compared to industrialized countries around the world, the policy of “retirement at age 60” has been deeply imprinted into the minds of Chinese people for the past few decades, especially the post-60s, post-70s, and even post-80s population. The vast majority of people want to retire at age 60 after paying 15 years of social security.
According to the results of a survey on “delayed retirement” conducted by the Wuhan, China-based Changjiang Daily last year, more than 80 percent of the 96,000 Internet users who voted clearly opposed the idea, mainly for reasons such as declining health quality and inability to find a job. If they don’t retire and have no job, they can’t maintain a normal life.
China’s policy of gradually delaying the mandatory retirement age has been confirmed and is expected to be launched in the near future. A Beijing resident interviewed by Voice of America said that delaying retirement is a good thing in terms of national policy, and not a bad thing in terms of individuals.
She said, “If you are physically able to do so, and there is no burden on your family, then delaying retirement is a good thing! Your income will be higher when you are working than when you retire. In addition, China is now aging, and in an aging society, people retire early and go Home, and young people can’t come up, so there is less labor force.”
Observers say that China should adopt a gradual approach to delaying the retirement age, with some flexibility and flexibility in policy implementation, with reference to the United States to delay retirement for one year to increase pension payments by 8% incentive policy, to “pay more, get more, pay more” system design, to encourage people to delay receiving.
China’s approach to the current delayed retirement age reform is to “take small steps, implement flexibly and strengthen incentives”. Zheng Gongcheng, president of the China Social Security Association, said last November that it is feasible for China to raise the retirement age to 65 around 2050.
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