([No author indicated]. Beijing Wanbao (北京晚报, Beijing Evening News), June 7, 2012, p. 22. Complete text:) In response to questions recently posed by some Internet users, the Ministry of Human Resources and Social Security commented, “Given the continuing socioeconomic development in our country and the continuing increase in the average lifespan, it is natural to consider postponing the retirement age accordingly.”
That statement immediately caught the attention of people from all walks of life in society.
What are the issues with the retirement age policy? Does that policy need to be adjusted? How should it be adjusted? This reporter interviewed some social security experts regarding those questions.
What is the proper retirement age? What is appropriate?
China’s current retirement age standards are 60 for male employees, 55 for female cadres and 50 for female workers. These standards were originally set according to the provisions in the Labor Security Regulations adopted in the 1950s. At the time those standards were established as policy, the average lifespan of the country’s population was only about 50 years.
As a result of socioeconomic development, some dilemmas and problems have emerged regarding the retirement age policy. One of the problems has been caused by the conflict between relatively early retirement ages and increased life expectancy. Currently, the average life expectancy of our country’s population has risen to 73.5 years, which is the level of a moderately developed country. Another problem relates to the two different retirement ages for female employees depending on their job classifications; this has led to many disputes in the workplace.
Proponents’ argument: Postponing the retirement age can help avoid wasting social resources.
“From the mainstream academic viewpoint, gradual postponement of the retirement age is a natural choice consistent with increased life expectancy and schooling, and with the aging trend of our population,” said Prof. Zheng Gongcheng of Renmin University, “However, it mustn’t be handled too hastily. Neither should it be handled in an indiscriminate and simplistic manner.”
Some people also believe that postponing the retirement age is conducive to making better use of human resources – especially for allowing the “scarce” communities of senior professionals to fulfill their roles to a maximum degree and to expand the space for their professional development. Especially in the case of women, at the age of 55, they are still in the golden years of their careers. Forcing them into retirement at that age not only constitutes discrimination against women, but it also results in a significant loss of social resources.
Opponents’ argument: Tough job market is likely to be aggravated.
On the other hand, there are also many people who wish to retire as soon as possible. Zhang Guishuang is 48 years old. She once worked at a wool textile factory in Beijing and got laid off many years ago. Now she really wants to qualify for the retirement pension as soon as possible so that she can immediately have a stable income. Obviously, she would not benefit from a postponed retirement age. There are also people who worry that postponing the retirement age is likely to undercut the availability of open positions and further aggravate a tough job market, since China’s labor force exceeds the demand for labor.
Is the pension insurance system unsustainable if the retirement age is not pushed back?
Zheng Bingwen, director of the Chinese Academy of Social Sciences’ Center for International Social Security Studies, argues, “Without postponing the retirement age, sustaining the current pension insurance system will be impossible.”
According to Ministry of Human Resources and Social Security statistics, by the end of 2011, the number of people in urban areas of the country participating in the basic pension insurance program had grown to 283.91 million. The number of insured retirees was 68 million, an increase of 5.21 million over the end of the previous year.
Zheng Bingwen did this calculation for this reporter. By the retirement age of 50, a female employee would have contributed to the pension insurance program for 15 years and may continue to live for at least another 24 to 25 years in retirement. The female employee and her employer would contribute 28% of her earnings. If her pension fund produces a 5% return on investment, there would be only enough money for her to receive 15 years of payments at a level of 40% of her preretirement salary.
“Besides reforming the investment system and raising the rate of return on investment, the long-term solution to ensure the financial sustainability of the system is to increase the minimum number of years of individual contribution and postpone the retirement age,” said Zheng Bingwen, frankly indicating that this matter would affect massive segments of society and a complex web of interests, and that progress could be made only gradually.
Lately, the issue of an aging population has become an increasingly real challenge to China [see Current Digest, Vol. 1, No. 2, pp. 6‑8]. Zhu Yong, deputy director of the National Working Committee on Aging, explained that the number of Chinese seniors over the age of 60 will grow from 178 million in 2011 to 221 million in 2015. The proportion of the elderly population will increase from
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13.26% to 16%. By 2020, there will be as many as 255 million elderly people in the entire country, accounting for 17.8% of the total population. By 2050, the proportion of the working age population to the elderly population will have declined from 10:1 in 2000 to 2.8:1.
Zheng Bingwen said, “After all, passing this problem on to future generations is not a solution. The potential risks, however, will definitely surface in less than 20 years.” Zheng Gongcheng also said that the current retirement age standards have caused a significant decline in the amount of time a person spends working during a lifetime, and have also posed a threat to the financial sustainability of the pension insurance system.
How can the retirement age be adjusted systemically and gradually?
At this year’s sessions of the National People’s Congress and the Chinese People’s Political Consultative Conference, Human Resources and Social Security Minister Yin Weimin pointed out that, compared to most countries, China has a relatively early retirement age. To be able to cope with the challenges an aging population poses to China’s pension insurance system and to allow China’s human resources to play a better role, the issue of postponing the retirement age needs to be further explored.
Zheng Gongcheng believes that the rational solution is to perhaps implement a cautious and gradual deferment of the retirement age coupled with a flexible retirement system. Zheng Gongcheng said, “The relationship between employment, retirement and the interests of different communities must be well balanced. That way, not only can we adapt to the increased average life expectancy, but we can also prepare to meet the labor demand and extend each individual’s working cycle in the future.” At the same time, he emphasized that, with regard to such a public policy, drastic changes and overhauls are absolutely inadvisable. A program that most people may be willing to accept is to push back the retirement age a certain extent each year until the goal is completely achieved at a later time. The key element in a gradual reform is fairness.
“A flexible retirement system also needs to be established in our country – i.e., those who are able and willing to work will be allowed to work more, and those who are unable to keep working and are very interested in retiring as scheduled will be allowed to retire at the scheduled time,” Zheng Gongcheng said.
It is worth mentioning that some regions have started to experiment with a flexible retirement system. On Oct. 1, 2011, Shanghai started to implement a flexible postponement option for those applying for basic pension withdrawals. It was mandated that, under normal circumstances, men are allowed to defer withdrawals to no later than the age of 65 and women to no later than 60.
In a written response, the Ministry of Human Resources and Social Security said that it is in the midst of conducting an in-depth study on the retirement age and the age for collecting basic pensions. As society gradually progresses toward a consensus, based on the opinions gathered from a wide range of sectors, the Ministry will make timely policy-oriented recommendations for the flexible postponement of the age for collecting basic pensions.
Does postponing the retirement age result in collecting a smaller pension?
In Nanjing, an authoritative expert on senior care insurance said that postponing the retirement age could help extend the amount of time a higher salary is earned at work, and that postponing the retirement age does not result in collecting a smaller pension.
According to the current pension formula, the more a participant in the insurance program contributes to his or her pension, the bigger the base of that pension. A person who retires at age 40 and a person who retires at age 65 are expected to make a different number of monthly withdrawals from their retirement pensions. The person who retires at 40 is expected to make withdrawals from his or her retirement pension for 233 months. The person who retires at 65 is expected to make withdrawals from his or her retirement pension for 101 months. The withdrawal amount in each person’s account is calculated by dividing the accumulated sum of savings in that person’s account by the number of months that person is expected to make withdrawals. Put simply, if a person makes fewer withdrawals from his or her retirement pension, that does not mean that the total amount of that person’s retirement pension will be any smaller.