The government of China has declared its intention to raise the retirement age for its workforce, with the new policy set to begin on January 1, 2025. This significant change is perceived as a response to the pressing issues related to an ageing population and the financial strain on pension systems. Approximately half of the country’s provincial administrative areas reported pension fund surpluses that could potentially be transferred to the central government in 2023.
Among these regions, only Guangdong, Beijing, Jiangsu, and Anhui managed to contribute no less than 10 billion yuan (approximately $1.4 billion) each. Reactions among local residents to this policy shift varied. “It was something we anticipated,” one local commented, echoing a widespread viewpoint among those who have been monitoring the demographic developments and the pressure on social security networks in China.
Another local highlighted that, although this change was expected, it would necessitate considerable adjustments for individuals who had structured their retirement plans around the previous age limits. The governmental decision emphasizes an urgent need to respond to demographic changes and ensure the long-term viability of public finances. As the policy is implemented, its effects on both the workforce and retirees will become clearer.
This marks the first rise in retirement age in China since the 1950s, largely due to financial deficits in its pension framework. The new retirement age for men will increase from 60 to 63 years, whereas for women, those in blue-collar sectors will see their retirement age rise from 50 to 55, and those in white-collar jobs will go from 55 to 58. The authorities have indicated that the transition will occur gradually over the next 15 years, starting early in 2025.
Early retirement will not be an option, although workers can opt to postpone their retirement by up to three years. Currently, China’s retirement age is one of the lowest globally. Even with the forthcoming policy, it will still remain beneath the retirement age threshold in many developed nations.
Yi Fuxian, a demographer from the University of Wisconsin-Madison, noted that China might encounter greater difficulties than most developed countries. “China has not changed the retirement age until now, and the recent postponement is still inadequate,” Yi stated. He pointed out that had this policy been adopted 20 years ago, many of today’s problems could have been averted.
Last year’s birth rate in China dropped to a historic low of 6.39 births per 1,000 individuals, resulting in a population decline of over 2 million.
Increasing China’s Retirement Age
In the past few years, Chinese authorities have launched initiatives aimed at encouraging childbirth; however, many young Chinese women remain skeptical about starting families, particularly amid a slowing economy.
Eli Friedman, a labor politics scholar at Cornell University, remarked that increasing the retirement age would do little to alleviate workforce reduction. “If anything, it could have the opposite effect,” he said, given that grandparents often play an essential role in childcare. Additionally, the new policy will necessitate that employees contribute more to the social security framework in order to qualify for pensions starting in 2030.
By 2039, individuals will be required to have made contributions for a minimum of 20 years to be eligible for their pensions. This change is occurring amid beliefs that Beijing’s pension fund may soon be depleted. In 2019, the Chinese Academy of Social Sciences cautioned about the risk of pension shortages by 2035—a projection made prior to the economic repercussions of the COVID pandemic.
“The government has limited options due to a major deficit in the social security system,” Yi remarked. Increasing the retirement age may relieve some of the pension pressure in the short term, but “it’s akin to postponing an impending crisis,” he cautioned. Friedman underscored that a fundamental reform of the welfare system is more essential than merely adjusting the retirement age.
China’s pension system is extensively decentralized, resulting in disparities among regions. For local governments experiencing declining tax revenues, fulfilling financial commitments becomes increasingly challenging. Friedman suggested that the establishment of a national pension system could bolster public confidence.
Another consequence of the phasing in of the higher retirement age will impact newcomers to the labor force. A later retirement means that fewer individuals will exit the job market, leading to reduced employment opportunities for younger workers. Youth unemployment has been on an upward trajectory, even after the government modified its calculation method to exclude individuals still in education.
In September 2024, youth unemployment rates reached 18.8%—the highest since the initiation of the new tracking system. “This underscores the dilemma the Chinese government faces,” Yi noted. Beijing is reluctant to make radical changes due to fears of possible social unrest.
A sudden and significant alteration in the retirement age might provoke protests from younger generations as well as those in their 50s, potentially resulting in a political crisis.
