China’s Move to Raise Retirement Age Elicits Calls for More Incentives to Work Longer

China's top legislature has announced a plan to raise the retirement age after more than a decade of preparatory work. The new policy will be implemented gradually starting next year, with men's statutory retirement age increased to 63 from 60 within the next decade and a half. For women, the retirement age will be postponed by three to five years, depending on their occupation, resulting in new retirement ages of 58 for white-collar and 55 for blue-collar jobs [para. 1][para. 2].

A pension insurance expert noted that this measure is milder than expected, considering that the retirement age in Organization for Economic Co-operation and Development (OECD) countries averages 64.4 for men and 63.6 for women, according to 2022 data. The expert also suggested that the threshold might be extended further in the future [para. 3].

The National People’s Congress (NPC) has also introduced an increase to the minimum period required for paying basic pension contributions, raising it from 15 to 20 years. This is seen as more effective in strengthening the pension fund compared to delaying the retirement age. According to Dong Keyong from Renmin University of China, extending the contribution period could boost monthly pension payments by around 30% [para. 4][para. 5].

While workers who have met the minimum pension contribution period can retire early, this will be limited to no more than three years before the new retirement age, and not earlier than the previous retirement age. They also have the option to defer their retirement by up to three years [para. 6]. Unlike the U.S., where later retirement is incentivized with higher pension payments, China's current policy lacks such provisions, which analysts say results in negative incentives, as the marginal benefits of delaying retirement decrease over time [para. 7][para. 8].

The NPC has listed “improving the incentive mechanisms for pension insurance” as part of its reform plan. This involves encouraging workers to contribute for longer periods, make larger contributions, or delay retirement to receive higher payments. However, specific rates have not been detailed [para. 9].

The policy change will be gradually implemented with small adjustments, flexible execution, categorized advancements, and comprehensive coordination. The retirement age will increase by one month every four months for men and white-collar women, and by one month every two months for blue-collar women, until it reaches the set targets [para. 10]. This aim is to slow down the decline in the working-age population and sustain economic and social development momentum, as emphasized by Wang Xiaoping, Minister of Human Resources and Social Security [para. 11].

Beginning in 2030, the new 20-year minimum pension contribution requirement will be enforced. This start date is intended to reduce the immediate impact on employees nearing retirement and currently fulfilling the 15-year contribution requirement, offering a five-year adjustment period [para. 12].

The retirement age increase follows a seven-decade-old system initially established in 1951, with one major change in 1978. As China faces a dramatic demographic shift marked by longer life expectancy, an aging population, and low birth rates, this step is deemed essential to mitigate the financial strain on the pension system [para. 14]. Experts have cautioned that the window for addressing pension fund imbalances is narrowing, underscoring the importance of supporting job markets, fertility rates, and elderly care services in the long term [para. 15].