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China to revise retirement policy as working-age population shrinks

Retirees in China. Photo: uschina.org

Facing a shrinking working-age population and a strained national pension system, China is set to release the final draft of legislation to raise the statutory retirement age within this year, a move that has raised public fears about unemployment of the youth and default on pension payments.

At a recent briefing, Li Zhong, a spokesperson of China's Ministry of Human Resources and Social Security (MHRSS), announced that the Chinese government plans to raise the retirement age in a "step-by-step" way, with the new policy first being applied to sectors that currently require early retirement before expanding it to more sectors, in order not to trigger wide-ranging social unease.

Currently, China's retirement age is 60 for most men, 55 for female civil servants and employees working for state-owned enterprises, and 50 for women hired by factories.

The new measures will take five more years to phase in, with retirement age to be raised by a few months every year to reach the target retirement age stipulated by the revised policy.

Some analysts predicted that the Chinese government may first raise retirement age for women to make it at par with their male counterparts before making further changes.

Data from the National Bureau of Statistics (NBS) showed that the working-age population has been falling since 2011 when such population reached its peak at 925 million. The figure would significantly drop to 700 million by 2050, the MHRSS estimated. Meanwhile, Yin Weimin, minister of the MHRSS, has said that the Chinese aged 60 and above are expected to account for 39 percent of the total population in the following years, from 16 percent in 2015 when the elderly population was 220 million.

With the elderly population increasing, younger working people are finding it harder to support a retiree. In 2015, about three working people supported a retiree, and the worker-to-retiree ratio will rise to 1.3 working people per retiree by 2050.

The trend, which puts strain on the country's pension system and public finances, is attributed by Li to the Chinese government's reluctance to raise the retirement age.

However, on Sina Weibo, a popular social media platform in China, a change in the retirement policy has given rise to a prolonged debate, in which the opponents seem to have outnumbered the proponents.

"Shouldn't the government talk about delaying retirement after wiping out the double standards," a Weibo user wrote. "In a first-tier city where I live, retried public servants enjoy a monthly pension of more than 10,000 yuan, while we ordinary people can only get more than 2,000 yuan a month."

"Facing a shortage of pension funds and privileges held by public servants, the government can do nothing but squeeze us ordinary people", another Weibo user wrote.

Many Internet users even wondered if private companies would like to have a person aged 65 as a staff member, the new retirement age likely to be set by the revised policy.

China has benefited from the demographic dividend for the past several decades, which has helped it become a global manufacturing center with abundant, cheap labor. But with an increase in the human resource costs, China is being dwarfed by Southeast Asian countries like Vietnam where labor costs are much lower.

'Limited impact' on youth employment

Last week, the MHRSS published 12 articles in which experts from government-backed think tanks defended the government's decision to lift the retirement age, alleviating public concerns about the job prospects of young people.

The articles concluded that it is a reasonable policy move based on the full consideration of the demographic change, labor supply and demand, extended years of education, as well as enhanced life expectancy.

In terms of occupational pattern, Li said the raising of the retirement age would make a "limited impact" on younger people who are afraid of fewer job opportunities because they "prefer jobs in emerging industries such as the Internet and e-commerce", rather than traditional sectors like manufacturing that the revised retirement policy will mainly aim at.

Zheng Dongliang, director of the Institute of Labor Science under the MHRSS, said that delayed retirement will enable China to make full use of its human resources, citing the fact that China is undergoing an industrial restructuring and more years spent in education will allow people to work longer to make greater contribution to the society.

Chu Fuling, director of the Social Security Research Center of the Central University of Finance and Economics, said that many workers already work beyond their retirement age, a fact that can mitigate the negative effects of the new retirement policy. "New job opportunities can be maintained through economic development, industrial restructuring and new industry creation," said the expert.

However, many senior workers in the labor intensive sectors, especially those with simple skills, are worried that delayed retirement would make them less attractive than younger workers, calling for more support policies to be implemented.

Pension system under stress

There have been long-standing fears that raising the retirement age is linked to the shortage of the national pension fund, with some analysts predicting that the fund shortfall could climb to roughly $11 trillion in the next two decades.

In response to the concerns, Li said that the longer people buy pension insurance the more pension they will get from the government, a view dismissed by others who think that, on the contrary, it means they will enjoy pension for fewer years if they work longer.

According to statistics from the MHRSS, as of the end of 2015, there was a net surplus of the national pension fund of 4 trillion yuan.

Professor Zheng Gongcheng from the School of Labor and Human Resources of the Renmin University of China believes that the problem does not lie in the size of the fund but what the government can do to avoid a depreciation of the fund. "I think people whose retirement age is raised will be given higher pension after retirement in order to offset their losses."

The Chinese government has long been criticized for its inability to properly manage the national pension fund, raising fears that the current workers will be unable to receive their pension as promised.

In the second half of this year, China's National Council for Social Security Fund (NCSSF) will use some of the cash owned by the local retirement fund managers for investment in the domestic stock market for higher returns for the national pension fund, which has been plagued by low returns due to its reliance on bank deposits. It is a policy correction in face of the rapidly aging population that is blotting up the pension fund pool.

But the fund will "tend to be prudent and the process may be very gradual, that is, it will enter the market over the next several years," said Ben Bei, an analyst at CIME Securities in Hong Kong, according to Bloomberg News.

In 2014, the State Council, China's cabinet, decided to combine the urban and rural pension systems amid an acceleration of urbanization.
 


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