China is embarking on a major transformation of its pension system. Long delayed, this reform comes against a backdrop of an accelerating ageing population and a system on the verge of bankruptcy. Considered an essential step towards preserving the country’s economic and social equilibrium, this change marks the first modification of the retirement age since the 1950s.
China: a pension system inherited from another era
China’s pension system, introduced at the beginning of the Communist era, set the retirement age at 50 for women and 60 for men. These thresholds reflect a time when life expectancy was barely 40. However, as life expectancy has risen to 78.6 years, the model has become obsolete.
The existing system has proved incapable of meeting today’s demographic challenges: a steadily shrinking working population, a growing number of retirees and a growing financial imbalance in pension funds. According to forecasts, the state’s main pension fund could be exhausted as early as 2035.
Pension system : The reform’s major changes
The Chinese government has decided to gradually raise the legal retirement age over a 15-year period. By 2039:
- For men, the age will rise from 60 to 63.
- For female managers, it will rise from 55 to 58.
- For blue-collar women, the age will increase from 50 to 55.
In addition to this age change, employees will have to contribute to the pension system for 20 years instead of 15 in order to receive a full pension. This requirement will come into force progressively from 2030, with a half-yearly increase in the minimum contribution period.
Gradual but crucial reform to meet China’s demographic challenges
Aware of sensitivities, Beijing has opted for a gradual implementation. This smooth transition aims to avoid social protests and give the various stakeholders time to adapt. Despite this, discontent is palpable among a section of the population, particularly young workers faced with an already tight job market. In July 2024, unemployment among 16-24 year-olds reached 17.1%.
The reform comes against a backdrop of demographic upheaval. In 2023, 21.1% of the Chinese population was aged 60 or over, or 297 million people. This figure is set to exceed 400 million by 2035, representing over 30% of the country’s total population. At the same time, the birth rate remains in free fall, despite the abandonment of the one-child policy and the introduction of incentives. These dynamics pose major challenges for both the pension system and the country’s economic development.
An inadequate solution: towards broader reform?
While the reform is an important step forward, it does not solve all the structural problems. China’s pension system is complex, with a diversity of schemes between rural and urban areas, and a heavy dependence on public funding. What’s more, the gap between men and women in terms of life expectancy and retirement duration remains wide, deepening economic inequalities. Despite early retirement, women risk receiving lower pensions due to lower salaries and shorter contribution periods.
Further reforms will be needed to ensure the system’s sustainability. Among the avenues already explored are improving productivity, developing new employment sectors, improving gender equality in the labor market and expanding public health care.
Difficult balance between sustainable retirement policy and workers’ well-being
The Chinese government will also have to strengthen citizens’ confidence in the system by offering them guarantees on their future pensions and reducing socio-economic inequalities. Striking a balance between viable pension policies and workers’ well-being remains a colossal challenge for the world’s second-largest economy.
Ultimately, this reform marks a crucial step for China, but it also highlights the systemic challenges associated with a rapidly ageing population. If well managed, this transition could inspire other countries facing similar demographic challenges.
Published by the Editorial Staff on