Caixin
Apr 01, 2015 12:51 PM

Slowly, China Prepares to Raise Retirement Age

(Beijing) – The Chinese government plans to take pressure off the nation's increasingly strained pension system by gradually raising retirement ages for the nation's millions of workers between 2017 and 2022.

Eligibility ages for men, women, urban workers and farmers will be raised step-by-step by adding "several months every year" to the age when pension payments can begin, said Yin Weimin, who heads the nation's Ministry of Human Resources and Social Security.

Speaking to the media recently on the sidelines of a National People's Congress session in Beijing, Yin said a complete plan for raising the retirement age would be drafted by his ministry in 2015 and submitted to the State Council next year. The first eligibility adjustment is likely to come in 2017.

The minister's comments offered the clearest roadmap to date for a long-debated proposal to update the pension system. The current system, including separate pension schemes for urban employed, unemployed and farmers, supports more than 200 million people nationwide with monthly payments ranging from an average 2,000 yuan for an urban pensioner who worked at a state or private company, to as little as 70 yuan for a retired farmer.

The system collected about 2.6 trillion yuan from active workers in 2014 and paid out about 2.1 trillion yuan to retirees. The pension fund finished 2014 with a surplus of 577 billion yuan.

The average age of the country's population is quickly rising. While today about 15 percent of the nation's 1.4 billion people are 60 years old or older, says the Ministry of Civil Affairs, that slice of the population pie is expected to grow to nearly 40 percent by 2020.

The human resources ministry estimates that without any change in pension eligibility, the nation's worker-to-retiree ratio will likely climb from 3.04:1 last year to 2.94:1 in 2020 and 1.3:1 by 2050.

A 2001 government study concluded that pushing the retirement age higher by one year would save the fund about 20 billion yuan annually. A one-year delay would increase annual payments by 4 billion yuan, the study said, and cut spending by 16 billion yuan.

Pension reform has been on the government's front burner since 2013. Not only have policymakers discussed changing the eligibility age, but they've also looked for ways to streamline pension fund management, and close the gap between rural and urban pension payment levels.

Last year, the State Council voted to combine urban and rural pension systems. And in January, the council announced a plan to merge company employee and civil servant coverage.

Nothing on the evolving reform agenda has stirred more controversy than proposals to raise the retirement age. Yin's comments suggested, however, that the debate is drawing to a close.

Resisting Change

The national pension system is a lot easier on women than men. It's also easier on city folk than farmers. An urban woman working for a state or private company can start collecting a monthly pension at age 50. Her colleagues who are men usually have to wait until age 60 to become eligible.

Today, Yin said, 54 is the average retirement age for the estimated 80 million urbanites working for state or private companies across the country.

Because the system includes separate payment programs for company workers and civil servants, bureaucrats tend to work about five years longer than state-owned enterprise employees. There's yet another program for farmers, both men and women, who can collect pensions no sooner than age 60.

These age limits have been nationwide standards since 1978, which helps explain why there has been some public resistance to proposals for raising the retirement age. In some parts of the country, the only adjustment in recent decades came in the mid-1990s, when millions of people in their 40s working for state-owned enterprises were given no option but to accept early retirement.

Well aware of public concerns, government officials have taken a cautious approach to crafting proposals for raising the retirement age. In September 2010, for example, the then vice minister of the human resources ministry, Wang Xiaochu, triggered a public furor by saying the ministry was looking at lifting the retirement age.

After an online public opinion survey found 92 percent of respondents opposed a higher retirement age, the human resources ministry said there would be no immediate changes.

After that, some local governments started testing the waters for possible adjustments that might be applied nationwide. Results so far have been mixed.

Since 2010, Shanghai has been encouraging older employees who work for local companies to voluntarily delay their retirements. Shanghai is home to a larger proportion of elderly people than other Chinese cities. But only a few thousand people out of the estimated 3 million eligible for retirement over the past five years have accepted the invitation.

Meanwhile, central government authorities have continued working toward nationwide adjustments. An order to study raising the retirement age was written into the government's 12th Five-year Plan in May 2012, which coincidentally was the first year of a documented decline in China's total labor force, which ended the year with 940 million workers, down 3.45 million from the previous year.

In a reform roadmap drawn up by the third plenum of the Communist Party's Central Committee, officials called for "studying policies" leading to raising the retirement age.

Later that year, Hu Xiaoyi, a vice minister of human resources, said raising the retirement age would help close the gap between the pension fund's income and payouts in step with the country's demographics, and support the need to create jobs and reform the industrial structure. The importance of closing the gap was further emphasized late last year when Vice Premier Ma Kai said payout growth had outpaced income growth by 5.3 percentage points in 2013.

"If we don't change the system and adjust policies, there will definitely be a gap, a huge gap," said Ma.

Mulling Proposals

Now that the government has decided to roll out the adjustment plan, discussions are focusing on how the new policy should be implemented and whether extra supportive policies will be needed.

One idea posed by some academics following the retirement issue has been to lift the pension eligibility age while letting each worker choose his or her retirement age.

One proponent of this idea is Yang Yansui, director of the Social Security Research Center at Tsinghua University in Beijing. In 2013, Yang and her colleagues proposed gradually raising the eligibility age starting in 2015 so that by 2030 all men and women would have to reach age 65 to qualify for pension checks.

At the same time, though, Yang thinks workers should be allowed to choose their retirement age.

Also supporting a higher retirement age is the Chinese Academy of Social Sciences (CASS), a government think tank that last year proposed a plan to raise the retirement age to 65 by 2045. Under the plan, the age for women would be pushed up by one year once every three years starting in 2017, while the age for men would be raised by one year once every six years.

Feng Jin, an economics professor at Fudan University in Shanghai, said adding five years to the retirement age for men and women would help the pension system break even by 2030.

A source close to the human resources ministry said its officials are leaning toward adopting the CASS proposal over Yang's.

Other academics have weighed in with supplemental proposals for improving the pension system. Hu Jiye, a pension policy expert at the China University of Political Science and Law in the capital, said a person's health should be considered when deciding an appropriate retirement age. A 2010 United Nations Development Program report said the average lifespan in China is 73.7 years, and that includes an average 66 years of good health.

Xiao Wen, a Stanford University economics professor, called for gradually introducing pension eligibility changes in order not to shock the public. People need "time to prepare," he said.

"You can't just tell a 55-year-old who is ready for retirement that he has to work until age 65," Xiao said. "But you can tell a 40-year-old who expected to retire at 60 that he will retire at age 62."

Other experts such as Wei Shangjin, chief economist at the Asian Development Bank, think people should choose for themselves when and how to retire. But tax cuts could be offered for those who delay retirement to encourage longer working lives.

CASS researcher Wang Dehua said the government's final plan for retirement reform should adjust the eligibility ages for men and women separately, given their differences under the current system. He also supports a gradual phase-in and an adjusted payment plan.

All of these ideas and more will be considered when government officials sit down to hammer out the final plan during the months to come, said Xin Weigang, director of the human resources ministry's Social Security Institute. Life expectancy, the pension fund's financial status, the public's response and how the policy affects different social groups are among the issues to be considered before the final draft is approved.

Also up in the air is how quickly the adjustments will take effect. Yao Yang, dean of the National School of Development at Peking University, said the program should be implemented as soon as possible since by 2022 the pension fund "will be under a great deal of pressure."

Nevertheless, raising the retirement age could have a negative impact on younger workers, said Tang Jun, secretary-general at the CASS Social Policy Research Center. He warned of shrinking job opportunities for youths if the retirement age is raised.

And policymakers could lose public support if it's perceived that the pension system was reformed without input from ordinary workers, said Zheng Guanghuai, a social policy professor at Nanjing University. That problem could be avoided, said Zhang Qianfang, a law professor at Peking University, if policymakers take the time needed to conduct surveys and share information with the public.

Meanwhile, other academics say reforming birth-control policies should go hand-in-hand with adjustments to the pension system. They say the government should go beyond its 2013 decision to change the one-child policy so that a couple can have two babies if either parent is a single child.

Wei, of the Asia Development Bank, said birth control restrictions should be eased as a complement to raising the retirement age. Such easing would increase the number of young people in the workforce to offset the rise of an elderly population living on pension payments.

People aged 60 and over will make up 19.3 percent of the population by 2020 and 43.2 percent by 2050, up from today's 14.9 percent, government data show.

Fudan University's Feng said raising the retirement age alone will not fix the country's demographic challenges. What's more important, he said, is that the government work toward adjusting the nation's population structure.

Liang Jianzhang, chairman of the travel agency Ctrip.com International Ltd., and Huang Wenzheng, a biostatistics expert at Johns Hopkins University, recently co-authored an essay that argued that the demographic problems have more to do with low birth rates than a surplus of elderly people.

"While delaying retirement for millions of Chinese may help, the fundamental solution for an aging China is to raise birth rates and ultimately maintain a more stable, younger population," they wrote in a column for Caixin.

(Rewritten by Han Wei)

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