China’s pension problems

China is reforming its pension management and starting to encourage private retirement savings. Yesterday (April 21), China’s cabinet (April 21) announced that people will be allowed to contribute up to around $1,800 annually over their mandatory contributions, though it’s unclear when this will begin. For now government funding is critical.

Pension systems are underfunded in part because local governments rely on current contributions to pay older generations of state workers—who themselves didn’t have to make contributions—rather than reserving that money for future payouts. Company contributions to employee pensions are already set high, and in 2020 the main state pension fund reported its first annual deficit after the government allowed companies to reduce contributions as a form of a pandemic relief.

Those gaps, coupled with growing evidence of China’s rapidly aging population, are bringing new urgency to the retirement-age conversation. China has yet to lay out a timetable for changing it, but has said the change would be “gradual” and voluntary. That likely means starting by experimenting regionally. In March, China’s coastal Jiangsu province, which neighbors Shanghai, kicked off a pilot program (link in Chinese) to encourage workers to voluntarily delay retirement, if both the company and employee agree. Other provinces sounded out public opinion at meetings with employees across industries last year, and several are currently drafting rules for their own trials, according to state business publication, China Economic Weekly (link in Chinese).

What’s also unclear is whether China intends to standardize retirement ages for men and women. The current system truncates women’s professional lives, and lowers the money available to them in retirement, as they’ve had fewer years paying into the system.

China’s child care challenge

A better pension system isn’t the only thing China will need if it wants to up its retirement age. Retired workers serve a key function for their children—as safe, free child care. That means delaying retirement could incidentally hurt another of China’s goals: getting younger women to have more children.

“There’s a lot of resistance to changing retirement age,” says Ye Liu, a sociologist and senior lecturer in international development at King’s College London. “People want to retire earlier. One of the main reasons is to look after their grandchildren…the women of the one-child generation really rely on parental and in-laws’ support for child care.”

Jane Li contributed reporting.

📬 Sign up for the Daily Brief

Our free, fast, and fun briefing on the global economy, delivered every weekday morning.