Flexible retirement age can help fix some problems of aging society

The news of the Ministry of Human Resources and Social Security working on a plan to raise the retirement age has sparked a heated debate, although You Jun, vice-minister of human resources and social security, said on Friday that the ministry will solicit public opinions to make the plan as widely acceptable as possible.

There are three main advantages of raising the retirement age. It is good for the sustainability of the pension fund system, the stability of labor supply, and the involvement of individuals to create more wealth.

But given other countries’ experiences, delayed retirement does not necessarily mitigate the pressure a rapidly aging population puts on a society. Take Japan as an example. With the highest proportion of senior citizens of any country in the world, it raised the normal retirement age from 50 to 65 in four decades. And it could further extend the retirement age to 70 in the near future.

Yet Japan has not been able to overcome its pension fund crisis and labor shortage, or deal with the new challenges such as some young people refusing to pay insurance, or being reluctant to marry or have children.

To deal with the aging population problem, a country needs to take some necessary measures. But like in Japan, sometimes such measures end up creating new problems. So how can we prevent the raising of the retirement age from creating new problems?

An aging population will affect different areas, including the economy. Thus China needs to devise long-term policies in line with the ground realities before raising the retirement age.

It is vital to understand the complexity of the aging population problem to answer the question. If longer life expectancy is the “engine” of an aging society, low fertility rates can be taken as the “accelerator” and internal migration as the “transformer” of the problem. An aging population will affect different areas, including the economy. Thus China needs to devise long-term policies in line with the ground realities before raising the retirement age.

China will not face a labor shortage in the near future, because it has a nearly 900-million-strong labor force. A big problem in the labor market is the imbalance between supply and demand. Along with rapid digitalization and automation, the mode, channels and standards of work, and the incomes of individuals have undergone rapid changes. Plus, many people can still work after retirement.

Therefore, China should establish a more flexible retirement system. For example, the current retirement age for men in China is 60. Instead, the government could allow people to retire as early as 45 or as late as 75, depending on the health and productivity of the individual.

A flexible retirement system has four benefits.

First, it will ensure the social security system improves people’s livelihoods, and retirement and pension funds guarantee basic livelihood support post-retirement. It will also help stabilize the social environment and offset young people’s reluctance to contribute to the pension fund.

Second, it will ease the pressure on the pension system. The earlier one retires, the less pension one gets, so the flexible retirement arrangement won’t put more financial pressure on the pension fund.

Third, it can help restore tradition family functions, as people who retire early can take care of the elderly and minors at home. No matter how advanced the eldercare and childcare systems become, they cannot replace family members’ role in bringing up children and taking care of the elderly.

And fourth, those who retire can seek re-employment after receiving special training. Japan has explored ways to encourage senior citizens to rejoin the job market, including free training, preferential tax policies and pay subsidies.

But China should change its retirement policy in line with the real conditions to achieve higher-quality sustainable development.