Analysts say China’s increase in retirement age may be unpopular but necessary | Wilnesh News

China’s top legislative body reportedly approved an official plan on Friday to gradually raise the national statutory retirement age starting from January 1 next year and ending in 2040. Chinese state media.

The ultimate goal of the roughly 15-year plan is to raise the retirement age for men by three years to 63, for women in factory jobs from 50 to 55, and for women in white-collar jobs from 55 to 58. .

Erica Tay, director of macro research at Maybank Investment Bank Group, told CNBC that the reforms are “long overdue and very welcome.”

China has been grappling with a shrinking workforce and looming pension budget shortfalls that could severely damage the economy.

Economists have long called for an overhaul of the country’s retirement age laws, which currently have one of the lowest in the world and were enacted at a time when life expectancy was lower. In 2023, average life expectancy will increase to 78.6 years old, Roughly from 44 years old 1960.

aging population

Beijing’s low birth rate and relatively early retirement age mean its working-age population will continue to shrink.

Tai said the country needs to be able to tap into the pool of older workers when the labor force contraction becomes more severe over the next decade. “This policy change will prevent a sharp, even if modest, decline in China’s potential growth.”

Bruce Peng, chief economist and head of research for Greater China at investment management firm Jones Lang LaSalle, said it was a prudent move to “strike a balance between addressing demographic stagnation and managing people’s expectations” in a gradual and cost-effective manner. Do it sparingly.

Beijing had previously said it was considering plans to raise the retirement age but backed off after sparking public outrage.

“The plan may be unpopular, but it provides much-needed certainty and is good for China’s long-term economic future,” Xu Tianchen, senior economist at the Economist Intelligence Unit, told CNBC, noting that China has avoided narrowing the gap between men and women. five-year gap.

Xu said China was proceeding cautiously to “avoid more social backlash.”

pension crunch

Ahead of the announcement, economists said China’s pension system, which relies on a shrinking active workforce to pay for a growing number of retirees, was unsustainable and needed reform.

Xie Nayue, an economist at Oxford Economics, said raising the retirement age will help alleviate the cash shortage problem in local government pension pools. “While inflows may not change much, outflows will be delayed, buying time for local governments to address budget deficits.”

exist 2019 reportThe state-run Chinese Academy of Social Sciences estimates that the pension system will be short of funds by 2035.

Still, Maybank’s Tai said “more needs to be done to improve retirement adequacy,” while noting that China needs stronger pension plans and diversified investment pipelines to ensure sustainable retirement savings. .

The 15-year project will be implemented step by step based on extremely complex computing systems. China’s Ministry of Human Resources and Social Security has added tools to its website and mobile app for citizens to check their retirement age.

Beijing said in a statement that exemptions may be granted to certain groups, while urging local and regional governments to “actively address the issue of population aging and encourage and support people to join the workforce or start businesses,” according to a Chinese translation by CNBC.

Xu warned that China could have “another round of postponements in the late 2023s, especially if China’s pension fund balances get tight”.