China is raising its retirement age for the first time in over 70 years: Why?

China is embarking on its most significant pension reform since the 1950s, addressing an array of economic, demographic, and social challenges. The decision to gradually raise the retirement age comes as the nation contends with a rapidly ageing population, a shrinking workforce, and mounting pressure on its pension system.

This move, which will begin implementation on January 1, 2025, marks a big shift in the country’s approach to retirement, with implications for the labour market, social welfare, and the broader economy.

What is China’s new retirement age?

The most direct aspect of this reform is the increase in the retirement age for both men and women. Currently, China has one of the world’s lowest retirement ages: 60 for men and between 50 to 55 for women, depending on their occupation.

Under the new plan, retirement ages will rise gradually over the next 15 years. For men, the retirement age will increase from 60 to 63. For women, the retirement age will be raised from 50 (blue-collar workers) or 55 (white-collar workers) to 55 and 58, respectively.

Wang Xiaoping, China’s Minister of Human Resources and Social Security, explained, “The raising of the retirement age would be done gradually, with the adjustment starting next year but taking 15 years to fully implement. It would be done on a flexible and voluntary basis, whereby an employee can choose to retire earlier or extend retirement for a period of up to three years.”

This reform comes after years of deliberation, with the Chinese government weighing the demographic and economic implications of an ageing society. It also introduces flexibility, allowing some employees to extend their working years voluntarily by up to three years.

This flexibility could help mitigate potential labour shortages while easing the transition to longer working lives for the population.

What is behind this move?

The most pressing reason for raising the retirement age is China’s rapidly ageing population. In 2021, people aged 65 and older made up 14.2 per cent of the population, and by 2035, that number is expected to rise to 30 per cent.

Life expectancy has surged from 44 years in 1960 to 78 years in 2021 and is projected to exceed 80 years by 2050. These trends reflect a seismic demographic shift that threatens to destabilise the labour force and increase the financial burden on the pension system.

China’s National Bureau of Statistics reported that the population fell for the second consecutive year in 2023, highlighting a sharp decline in the birth rate despite the government’s attempts to reverse its long-standing “one-child policy.”

The country recorded its lowest birth rate since the founding of the People’s Republic of China in 1949, with demographers predicting the elderly will account for 40 per cent of the population by the middle of the century.

The ageing population means a rapidly shrinking workforce, which threatens to undermine China’s economic growth. Over the next decade, about 300 million people who are currently aged between 50 and 60 will leave the workforce, equivalent to the size of the entire US population.

This decline in the working-age population comes as the country struggles with slowing economic growth, an uncertain global trade environment, and the aftermath of the COVID-19 pandemic.

How has China’s pension system been afffected?

China’s pension system is facing a looming crisis. Eleven of China’s 31 provincial-level jurisdictions are already running pension budget deficits, according to the Ministry of Finance.

The pension fund is projected to run out of money by 2035, according to a 2019 report by the Chinese Academy of Social Sciences — an estimate made before the pandemic further strained local government coffers. The pension system, which was designed when China had a much younger population, is now under immense pressure as the number of retirees grows.

In the last few years, several provinces have experienced widespread protests over reductions in medical benefits, which have exacerbated concerns about the sustainability of the pension system.

In early 2023, thousands of elderly people protested in major cities against cuts to their medical benefits, fearing that local governments were using their individual accounts to cover shortfalls in the state pension fund.

To mitigate the financial strain on the pension system, the government’s new policy will also increase the minimum contribution period for pensions from 15 to 20 years, starting in 2030.

This gradual shift will be fully implemented by 2039, with workers required to contribute for a longer period before they can start receiving their pensions.

How has the public reacted to this move?

Despite its necessity, the announcement to raise the retirement age has sparked widespread concern and anger across Chinese social media platforms. Many Chinese workers, particularly those in middle age or nearing retirement, fear they will be forced to stay in jobs they may no longer be suited for, or worse, not be able to find jobs at all due to age discrimination in hiring.

Social media platforms like Weibo have been inundated with complaints, with one user writing, “What a miserable year! Middle-aged workers are faced with pay cuts and raised retirement ages. Those who are unemployed find it increasingly difficult to get jobs.”

The discontent stems from fears of delayed access to pensions and worries about the country’s tight job market. Unemployment rates, especially among youth, have been rising, with the unemployment rate among young people aged 16 to 24 reaching 17.1 per cent in July 2023.

For people over the age of 35, age discrimination in hiring is a common complaint, particularly in the tech sector, where employers prefer younger workers, reported CNN.

Though some have accepted the reforms as necessary, others are less optimistic about their ability to continue working into their 60s. One user remarked, “Delayed retirements just mean you can’t get your pension until you hit 63, but it doesn’t mean everyone will have a job until then!”

At the same time, others have pointed out that China’s current retirement ages are significantly lower than those in developed countries. As one user commented, “Men in most European countries retire when they are 65 or 67, while women do at 60. This is going to be the trend in our country as well.”

How does China’ retirement age compare to other nations?

China’s current retirement ages are significantly lower than in many other countries. In neighbouring Japan, the retirement age is 65, and in South Korea, it’s 63.

In OECD countries, the average retirement age is 64.4 for men and 63.6 for women. China’s new retirement age framework will bring it more in line with its regional peers and global counterparts.

The country’s demographic crisis mirrors the challenges faced by other ageing nations, such as Japan and South Korea. France, for example, saw major protests in 2023 when the government attempted to raise the retirement age from 62 to 64.

In the United States, retirement reform has been a topic of debate for decades, with Social Security incentivising workers to delay benefits until the age of 70.

In India, depending on the sector, the retirement age varies from 58 to 62.

What next?

China’s decision to raise the retirement age marks a turning point for its ageing society and strained pension system. While the reforms are seen as necessary to address the country’s demographic crisis, they have sparked widespread concern among workers who face an uncertain job market and a delayed path to retirement.

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In the long term, economists predict that the reform will help stabilise China’s labour force and pension system. However, its success will depend on how well the government can manage the immediate impacts on workers and the broader economy.

With inputs from agencies