Working on easing pension pains
The move recognises three realities: rising longevity, falling fertility levels, and the country’s receding youth bulge.
Faced with the prospect of a drying pension pool, China has raised the retirement age of men from 60 years to 63 and of women from 50 to 55 and 55 to 58 depending on the nature of work. Over the next 15 years, there will be incremental hikes every few months. And, in a few years, individuals will need to have served for a minimum of 20 years to be eligible for pensions, against the current 15. The move recognises three realities: rising longevity, falling fertility levels, and the country’s receding youth bulge. Without the move, funding pensions would have fallen to a smaller pool of young workers, since pensions for retirees rest on the contributions of the currently employed to pension funds and the capital these generate. Also, the share of the government in the pension burden is at risk from the high deficits that certain provinces are saddled with. Delaying pension payouts can therefore provide much-needed relief. The move corrects China’s gap in retirement age with competing Asian economies such as South Korea and Japan. Against the headwinds to the future robustness of social security, China has chosen to act early.
But the move is not without its challenges. First, buy-in from the people who know the need to work longer is needed; though the Chinese context is very different, such moves elsewhere have sparked resistance. And second, enough jobs will need to be created to accommodate the demands of the youngest of the working-age cohort and to extend retention to the oldest. India, which could face similar challenges some decades later, must closely watch the Chinese experience to ensure that it avoids its pitfalls.
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