What are the concerns about China's aging pension system?

China's aging population poses a serious threat to key policy goals outlined by Beijing over the next decade, including boosting domestic consumption and managing rising debt levels. As China's population aged 60 and over will reach 296.97 million in 2023, accounting for about 21.1% of the total population, up from 280.04 million in 2022, there is growing concern that the pension system may not be able to keep pace without significant reform as the country's demographics change rapidly.

How does China's pension system function?

China's pension system has three main components: a basic pension system controlled by the government; a voluntary pension plan for employees offered by employers; and private voluntary pension plans. Despite these components, both corporate and private schemes are underdeveloped, according to scholars, and the public system is already under considerable financial strain. The pension system is managed largely at the provincial level rather than as a nationwide program, and regions in the north face the most significant pension deficits due to weak economies and significant out-migration over the years. To address the disparity between regions, China created a special fund in 2018 to redistribute pension funds from wealthy coastal provinces such as Guangdong to regions such as Heilongjiang and Liaoning. About a third of China's provinces face a shortage of pension funds, and projections by the state-run Chinese Academy of Sciences indicate that the public pension system could face depleted funds by 2035. According to pension experts, spending on public pensions in China already exceeds 5% of gross domestic product.

When do Chinese citizens receive a pension?

Chinese citizens become eligible for pensions upon retirement, typically at age 60 for men, 55 for white-collar workers and 50 for female factory workers. However, with life expectancy in China rising from 44 years in 1960 to 78 years in 2021 - higher than in the U.S. and projected to exceed 80 years by 2050 - more than 20% of China's 1.409 billion people are aged 60 or older. China boasts the world's largest social security system, with about 1.05 billion people expected to contribute to or receive payments from the national basic pension program, according to state media. However, according to the U.N. International Labor Organization, the average monthly pension payment in China in 2020 was about 170 yuan ($23.62), well below the average monthly payment of $1,907 under the U.S. government-funded Social Security program. Despite the higher wages earned by the average U.S. worker, retirement benefits in China still vary widely.

Is China planning to reform its pension system?

In 2022, China's State Council unveiled a plan to strengthen support for the country's aging population, which includes plans to increase the number of nursing homes and introduce a new private pension system to facilitate investment in various financial products. However, progress in reforming the pension system has been sluggish. Although China has announced an official policy to raise the statutory retirement age in 2020 and 2021, further details have not been disclosed. Many citizens have expressed frustration and concern about the possible changes on social media, citing the current difficult working environment and high unemployment rate. According to Larry Hu, chief economist at Macquarie, the ratio of ten working-age Chinese per retiree in 2002 has fallen to five in 2021, and projections point to a further decline to four in 2030 and two in 2050.