Sat, July 13

China’s Delayed Retirement Implementation and Its Impact

China Will Implement Delayed Retirement

Unexpectedly, a job hasn’t been found yet, but the proposal for delayed retirement has already surfaced. Some authoritative media have reported that following some foreign countries in delaying the retirement age is on the agenda. However, netizens are not very enthusiastic about it, with many lamenting that being considered too old for work at 35 and too young for retirement at 60 is problematic. From a broader perspective, let’s examine the relevant top-level design. At the 20th Party Congress in October 2020, a policy to progressively delay the legal retirement age was explicitly proposed. The content discussed at such a high-level meeting is carefully vetted, with the only uncertainty being when the policy will be implemented.

The Reality of China’s Workforce

From a personal perspective, the rationale for keeping pace with developed countries is not particularly convincing. This is mainly due to labour shortages caused by an ageing population. Recently, a video about an elderly American delivery man, approximately 50 years old, caught my attention. He refused to hand over a pizza to a young woman without a tip. Also in Japan, many taxi drivers seen during a travel vlog are in their sixties or seventies. These two jobs, in our context, are major drivers of employment: two-wheel deliveries and four-wheel ride-sharing services. According to the data from the ninth National Survey of Workers, new forms of employment primarily include truck drivers, ride-share drivers, couriers, and food delivery workers, totalling 84 million people. To put 84 million into perspective, according to the latest statistics from 2022, this number is only less than Jiangsu’s 85.15 million and surpasses Sichuan, which ranks fifth nationally. In other words, more people are engaged in delivery, courier services, and ride-sharing than the entire population of Sichuan.

Why China Implement Delay Retirement: Macro-Level Reasons

A reality that cannot be ignored is that our labour force is not actually scarce; a more direct reason lies in the future shortfall of pension funds. The term “future” is used because the current distribution of pensions is not an issue. As of February 1st, by the end of 2023, pensions were paid on time and in full. Firstly, this is due to transfer payments. In 2023, the central government’s budget for transfer payments to localities was 1.0625 trillion yuan, breaking the 1 trillion yuan mark for the first time, with basic pension transfer payments budgeted at 173.698 billion yuan, an increase of 145.932 billion yuan from the previous year, growing by 15.7%. This means that out of the central government’s 1 trillion yuan in transfer payments for the entire year of 2023, over 100 billion was for pensions alone. Secondly, it involves national coordination, which is the reasonable adjustment of surplus funds from various regions. This system has been implemented since 2022, and in 2023, the national coordination adjustment funds reached more than 271.6 billion yuan. These are the macro-level reasons.

Why China Implement Delay Retirement: Micro-Level Reasons

On a micro level, it concerns the social security contributions that each individual must pay monthly, which have been increasing annually. Taking Guangzhou as an example, in July 2023, the minimum contribution base was raised from 4,588 yuan to 5,284 yuan. Based on a 20% contribution rate, the basic pension insurance payment alone is 1,056.8 yuan, plus 453.92 yuan for medical insurance, totalling 1,510.72 yuan. Correspondingly, the pensions received by retirees are also increasing annually. Since 2006, there has been a consistent annual increase, achieving 18 consecutive years of rises. Research from Northeast Securities shows that the proportion of the population aged 60 and 65 will continue to rise. By 2030, the population aged 65 and over will reach 265 million, accounting for 18.5% of the total population. By 2050, this demographic is projected to grow to 348 million people, representing 26.49% of the population. There is undoubtedly significant pressure coming from pension obligations.

The Impact of Delayed Retirement

In fact, there’s no need to wait until 2030. According to the current legal retirement ages—60 for male workers, 55 for female officials, and 50 for female workers—the demographics correspond to the second baby boom period after the founding of the People’s Republic, specifically those born between the 1960s and 1970s. From 1962 to 1975, the birth rate exceeded 20 million annually for 14 consecutive years, totalling over 360 million people born during this period. Thus, even though pensions are currently being fully funded, the upcoming years will inevitably confront the challenge of funding pensions for hundreds of millions of people. The Chinese Academy of Social Sciences has published a report on China’s pension actuarial forecast from 2019 to 2050, predicting that by 2028, the national pension fund will face a shortfall, where current receipts will not cover expenditures. From a macroeconomic perspective, delaying disbursements on one hand, and requiring those reaching retirement age to contribute for a longer period on the other, could help to increase the reserves in the pension pool.

The Challenge of Delayed Retirement

However, there are two unavoidable issues to confront. First, at key positions controlling resources, there might be cases where positions are occupied by those unwilling to make way for younger, more capable individuals. Second, for the average worker, is job stability assured as they age? After all, only a minority are in the system; most people enter the harsh reality of the job market, facing a midlife crisis by age 30, uncertain if they can retain their jobs—only fate knows. Not every employer is like Mr. Zong Qinghou, the founder of Wahaha, who never dismisses employees over 45. As previously mentioned, the implementation of these policies is inevitable; it’s only a matter of when. With medical advancements, consider the upcoming 360 million people reaching retirement age—how many are in the public sector, how many work in enterprises, how many have social security, and how many are farmers? Some can contribute thousands to social security monthly, while others, nearing the end of their lives, have never contributed at all. The disparity is vast.

Some Thoughts

Pensions serve as a crucial link in the continuum of human civilization. If individuals cannot retire at 60, then ensuring job security and health benefits becomes essential in an ageing society.