Later re­tire­ment, bet­ter life

Rais­ing the su­per­an­nu­a­tion age will be good for China’s la­bor mar­ket and help the ba­sic pen­sion scheme be­come sus­tain­able

China Daily (Canada) - - COMMENT -

China will raise the re­tire­ment age in grad­ual steps, as pro­posed by the com­mu­nique is­sued by the Third Plenum of the 18th Com­mu­nist Party of China Cen­tral Com­mit­tee, end­ing the de­bate on whether rais­ing the re­tire­ment age is good for the coun­try’s la­bor mar­ket.

The re­tire­ment age is re­lated to peo­ple’s im­me­di­ate in­ter­ests, and most of the re­spon­dents to a re­cent online opin­ion sur­vey said they were op­posed to rais­ing the re­tire­ment age. The gov­ern­ment, nev­er­the­less, has de­cided to go ahead with the plenum’s de­ci­sion be­cause the ba­sic pen­sion insurance scheme can­not be sus­tained if the manda­tory re­tire­ment age is not raised.

The ex­ist­ing pen­sion scheme faces three main prob­lems. First, the coun­try’s ag­ing pop­u­la­tion is in­creas­ing at a rapid pace. By the end of last year, the pop­u­la­tion of peo­ple over 60 years of age in China had crossed 200 mil­lion, ac­count­ing for nearly 15 per­cent of the to­tal. By 2030, the pop­u­la­tion of the el­derly will add up to 26.5 per­cent of the to­tal, and peak to 440 mil­lion, or 35 per­cent of to­tal pop­u­la­tion, in 2051.

The large pro­por­tion of se­nior cit­i­zens in the pop­u­la­tion is the re­sult of the fam­ily plan­ning pol­icy, which has been fol­lowed for the past more than three decades. China’s ag­ing pop­u­la­tion will ul­ti­mately sur­pass the global av­er­age, de­mand­ing more funds for se­nior cit­i­zens’ wel­fare through en­dow­ment insurance and med­i­cal ben­e­fit schemes. And given the cur­rent wide gap be­tween in­come and ex­penses, the ex­ist­ing insurance sys­tem faces a huge op­er­at­ing risk in the near fu­ture.

Sec­ond, that cur­rent in­come lev­els can­not cover ex­penses is al­ready ev­i­dent in some re­gions of the coun­try, and their num­ber is grow­ing. By the end of 2012, 19 of the 32 prov­inces and re­gions failed to cover their ex­penses, which means many re­gions have to de­pend on fi­nan­cial aid to en­sure that pen­sion is paid to re­tirees on time.

Third, to a cer­tain ex­tent, the cur­rent ba­sic pen­sion insurance sys­tem has be­come “ac­count­ing on cash ba­sis”, in­creas­ing the cash pay­ment pres­sure. China has been fol­low­ing the model of “com­bin­ing so­cial pool­ing and in­di­vid­ual ac­count”, in which so­cial pool­ing funds are used to pay the ba­sic pen­sion and the in­di­vid­ual ac­count pays for oldage insurance. This means the sys­tem is de­signed to work as a “partly fund­ing” model, which is ideal for mod­ern so­ci­ety to ease the pres­sure of cash pay­ment.

But since the trans­for­ma­tion cost or his­tor­i­cal debt prob­lem af­ter the launch­ing of re­form and open­ing-up has not been fully solved, the col­lected so­cial pool­ing funds can­not cover the ex­penses, and the au­thor­i­ties usu­ally have to over­draw the in­di­vid­ual ac­count to pay pen­sion, cre­at­ing a huge “empty ac­count”.

Al­though the gov­ern­ment has tried to solve the prob­lem by in­creas­ing the pen­sion pre­mium amount that en­ter­prises’ em­ploy­ees need to pay — 13 prov­inces are part of the pi­lot project — its ac­tual col­lec­tion by the end of 2010 was just 339 bil­lion yuan ($56 bil­lion) when 2.95 tril­lion yuan was needed to bal­ance the ac­count. The planned “partly fund­ing” sys­tem is, there­fore, fac­ing in­creas­ing pres­sure of pay­ment.

It has thus be­come nec­es­sary to raise the re­tire­ment age in China, which is rel­a­tively low: 60 years for men, and 55 or 50 for women de­pend­ing on their job profi le. This would make 54 years the ac­tual av­er­age re­tir­ing age.

The ex­ist­ing re­tire­ment age was fi xed by the gov­ern­ment in the 1950s. The av­er­age life ex­pectancy then was less than 50 years, so the rules made per­fect sense. But since life ex­pectancy has in­creased to 74 years to­day, the re­tire­ment pol­icy needs to be changed.

More im­por­tantly, con­sid­er­ing China’s cur­rent de­vel­op­ment stage and emerg­ing prob­lems, the re­tire­ment age cer­tainly needs to be raised. In a re­form ex­per­i­ment, the Shang­hai mu­nic­i­pal gov­ern­ment has since Oct 1, 2010, de­ferred pay­ing pen­sion to cer­tain groups of peo­ple by three years. The ef­fect of the ex­per­i­ment is sim­i­lar to rais­ing the re­tire­ment age. But be­fore repli­cat­ing the model in other places, the au­thor­i­ties should study its pros and cons care­fully lest it trig­gers so­cial in­sta­bil­ity in the fu­ture.

In the fi nal anal­y­sis, the gov­ern­ment should fo­cus on three as­pects when rais­ing the re­tire­ment age. First, it should fol­low the peo­ple-first prin­ci­ple by tak­ing into ac­count the real sit­u­a­tions and needs of dif­fer­ent groups, and re­spect peo­ple’s le­gal rights.

Sec­ond, it should so­licit pub­lic opin­ion from across the so­cial di­vide be­fore putting the pol­icy into prac­tice.

And third, it should con­sider the se­cu­rity prob­lems of some spe­cial groups to en­sure that the changed re­tire­ment pol­icy runs smoothly. The au­thor is the di­rec­tor of So­cial Se­cu­rity In­sti­tute, af­fil­i­ated to the Min­istry of Hu­man Re­sources and So­cial Se­cu­rity.

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