A Shrinking Workforce Prompts China to Raise its Retirement Age

Amidst the shrinking workforce, China will be raising its retirement age for the first time in decades. Men’s retirement age will be 63, women’s retirement age will be 55, and the retirement age for white-collar positions will be 58. The updated retirement age will take effect at the start of 2025.

This Pacific Prime article will discuss the raised retirement age in China set to take effect at the beginning of next year, as well as its various impacts on the country’s economy, and some notable comments surrounding the retirement age increase.

Overview: The Raised Retirement Age in China

On September 13th, 2024, China approved a proposal to raise the country’s retirement age, altering the decades-old laws to tackle the economic pressure of the ever-shrinking workforce.

For years since the 50s, amidst the shrinking workforce and looming pension budget shortfalls, China will raise its retirement age. Men’s retirement age will be raised from 60 to 63, women’s retirement age will be raised from 50 to 55, while the retirement age for white-collar jobs will be raised from 55 to 58.

China’s Retirement Update: The Policy Implementation Date

According to authorities, the change will gradually take place every few months over the next 15 years starting from 2025. Additionally, according to China’s state news agency, Xinhua, while early retirement won’t be allowed, people can choose to delay their retirement by up to three years.

Notable Comments Surrounding the Policy Update

By raising the retirement age, according to the senior research fellow at the Center of Policy Studies at Victoria University in Australia, Xiujian Peng, the government can increase the labor force participation rate and help mitigate the adverse effects of population aging.

Peng said the government must take action and the shrinking labor force will accelerate “if the population continues to decline”, which will further impact economic growth.

Director of Macro Research at Maybank Investment Banking Group, Erica Tay, when asked by CNBC about the retirement age reform, said the reforms are “overdue and very much welcome”. China has been struggling with workforce shortage and looming pension budget shortfalls that could significantly damage the country’s economy.

Thus, economists have longed for an overhaul of the retirement age law, which currently stands as one of the world’s lowest.

The Updated Retirement Age Policy’s Impact on Aging Demographics in China

The low birth rates and considerably young retirement age in Beijing mean the workforce population will continue to shrink. Tay went on to say that China’s retirement age policy will “forestall a sharper drop” in China’s potential growth, though “if only marginally”.

Bruce Pang, Chief Economist and Head of Research for Greater China at investment management firm, JLL, said the updated retirement age policy “strikes a balance” between fixing demographic stagnation and managing people’s expectations at a gradual, measured pace.

Tianchen Xu, senior economist at The Economist Intelligence Unit, said that while the plan may prove unpopular, it will provide “much-needed” certainty, which is beneficial for China’s long-term economic future.

The Updated Retirement Age Policy’s Impact on Pension Problem in China

Prior to the announcement of the retirement age policy updates, economists said China’s pension system, relying on a shrinking active workforce to pay for a growing number of retirees, has proven unsustainable and must be reformed.

Raising the retirement age would ease the government’s pension crunch, though inflows “might not change much”, outflows could see delays, which buys the government time to fix their budget deficit, as stated by Oxford Economics’ economist, Sheana Yue.

Tay also further stated that more needs to be done in order to improve retirement adequacy while also adding that China needs a stronger pension plan and diversified investment avenues to ensure sustainable retirement savings.

Conclusion

In conclusion, with the raised retirement age in China being 63 for men, 55 for women, and 58 for white-collar positions, the updated policy will help strike a balance between fixing demographic stagnation and managing the public expectation, as well as benefiting China’s economic future in the long run.

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