Pension proposal raises debate in China

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A government proposal asking people to work longer and draw their pensions later has sent China into a nationwide debate, with many people wondering how the nation should cope with its rapidly aging population.

The Ministry of Human Resources and Social Security (MOHRSS) said last week that it is studying a more flexible retirement and pension system that allows people to continue working past the current retirement age of 60 for men and 50 for women.

The existing retirement system was introduced in China more than six decades ago, when the average Chinese life expectancy was 50 years.

The upward revision of the retirement age in the future will be "an inevitable trend" as China's economy grows and people live longer, the ministry explained.

Pension shortfall?

Analysts say financial pressure and the fact that people are living longer are the reasons behind the proposal, as an increasing number of Chinese will be retiring in coming years and claiming their pensions.

According to a joint study by the Bank of China (BOC) and the Deutsche Bank, an aging population will leave China with a shortfall of 18.3 trillion yuan ($2.89 trillion) in pension funds by 2013 and create a heavy fiscal burden for the country.

Liao Shuping, an investigator from the BOC's research team, said the pension fund deficit projection is an accumulated calculation based on past data released by the National Bureau of Statistics over the years, using presumably unchanged variables such as interest rates, mortality and salary growth rates.

Without any change in the pension system, Liao warned, the funding shortfall will expand year by year and hit 68.2 trillion yuan by 2033, or about 38.7 percent of the country's estimated gross domestic product, if the Chinese economy maintains an annual growth rate of 6 percent.

She said the estimated size of the deficit may vary due to changes in those variables. "But a widening gap in pension funds and an increasing fiscal burden are certain," she said.

Outstanding contributions to China's pension system, which now covers about 289 million working people, retirees and beneficiaries, stood at 1.9 trillion yuan at the end of last year, according to the MOHRSS data.

Under the existing pension system, each employee pays 8 percent of his or her salary into a private pension fund account, while employers add another 20 percent into private accounts.

More and more Chinese are beginning to spend their pension savings, however. The latest data showed that the number of people aged 60 or above reached about 185 million nationwide at the end of 2011.

A human rights action plan released by the Chinese government on Tuesday predicted 357 million urban residents will be covered by the pension insurance system by the end of 2015, thus adding to the government's pension payment pressure.

The number of Chinese people aged above 65 is also expected to rise sharply to 323 million, or more than 23 percent of the nation's population, by 2050.

Fan Jianping, chief economist of the State Information Center, insisted that the country's pension fund deficit has been exaggerated, saying the 18.3-trillion-yuan deficit is "too scary to be true."

"A pension deficit does exist in our country, but the government is well-equipped to solve the problem," Fan said, noting that the government can replenish the pension balance with the huge number of state-owned assets, bonuses and dividends from state-owned enterprises, if necessary.

By the end of last year, aggregate government fiscal subsidies for pensions amounted to 1.25 trillion yuan through the transfer of pension insurance payments.

Life extension

People are also living longer across the country, with the average life expectancy currently standing at 73.5 years.

Some academics have recommended caution regarding increasing the retirement age, saying that such an adjustment should not be introduced for the sake of reducing the state's pension subsidies.

"The fundamental goal of any reforms for the pension system should be to guarantee the sustainable development of the funds," said Chu Fuling, director of the Social Security Research Center with the Central University of Finance and Economics.

The Chinese government introduced its nationwide pension system in 1997.

Chu said the state should take responsibility for subsidizing pensions and cover the pension payment shortfall in accordance with the Social Insurance Law.

If everyone in China worked one extra year, pension funds be boosted by more than 4 billion yuan, while pension payments would be reduced by 16 billion yuan, according to research by Zheng Bingwen, head of the Social Security Research Center at Renmin University.

If the retirement age was raised to 65, China's workforce would be increased by 25 percent and the number of retirees cut by 28 percent, Zheng said.

The retirement age in most countries is around 65.

He noted that the aging population is creating pressure for social security funds.

"Many insured people now just contribute to pensions and have yet to spend pension savings, thus concealing risks," he said.

The total number of workers older than 15 and younger than 60 amounted to 920 million in 2010, but the figure is expected to shrink gradually between now and 2013, according to census results.

Pros and cons

Some senior citizens support the government's proposal, including 60-year-old Huang Shujing, a preschool education expert from central China's Hubei province.

"I am still in good physical condition and it would be a pity for me to give up my expertise and experience over the years," Huang said. She was given approval to continue working by local authorities after reaching retirement age.

"I think many of my female peers working as teachers or doctors are quite willing to work past 60," she said.

Government and public employees tend to support postponing retirement and spending pension savings later, as observed by Zhang Zhanxin, a social security study expert with the Chinese Academy of Social Sciences (CASS).

But critics argue that the downsides of raising the retirement age should be more thoroughly examined.

In an online survey by, the official website of the People's Daily newspaper, about 93.3 percent of 450,000 respondents indicated that they oppose raising the retirement age

"I oppose delaying the retirement age and pension payment," said Li Hui, a 47-year-old accounting manager for a Japanese company in Shanghai, "since I have to spend three hours commuting during work days and the work pressure is huge."

"[Retiring at] 50 is my bottom line," she added.

Employment is another concern, as raising the retirement age will produce even more difficulties for young people and the poor, who are sensitive to the job market.

China creates between 10 and 12 million new jobs annually, of which about 3 to 4 million are vacancies left by retirees.

"At any time in the future, China will still have at least 700 million to 800 million workers, no matter how bad the aging problem gets," said Tang Jun, secretary-general of the Social Policy Research Center under the CASS.

"We have about 100 million people without a job or underemployed," he said, "therefore, employment will continue to be a top concern for a country like China."

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