The long-debated proposal of raising the retirement age has again provoked heated debate on the Internet, after officials with the Chinese Ministry of Human Resources and Social Security (MHRSS) recently suggested that an adjustment of the age of retirement is inevitable, as a result of the continuous social and economic development and the increasingly greater life expectancy.
Tang Jun, a researcher with the Social Policy Research Center, Chinese Academy of Social Sciences [File photo]
A survey by People's Daily's web portal shows that, as of June 11, 93.3 percent of roughly 450,000 respondents voted against the proposed retirement age increase.
China's young people have long opposed to the plan out of fear that the retirement age extensions would reduce their employment opportunities, as 30 to 40 percent of the 10 to 12 million newly-added job vacancies annually are actually created by those reaching the retirement age of 60 for men, 55 for female civil servants and 50 for other female workers under the current Labor Law. If these new pensioners decide to retire years later, younger job seekers will be squeezed in the job market.
Generally speaking, the idea of postponing retirement age receives more support from government officials and white collar employees than from the blue collar workers. The reason is simple: As workers for physically intensive labor grow older, they are more likely to find it difficult to cope with the great pressure from their heavy workloads. There is greater possibility that they will be dismissed by their employers for declining physical conditions when they reach their 40s or 50s. In such a scenario, they lose their stable income, but still have to continue contributing to their individual pension accounts. They will have to shoulder much heavier financial burdens if the retirement age is pushed back and they have to work extra years to qualify for retirement benefits.
It's true that many developed countries with a population of only several millions have increased the retirement age as a way to deal with labor shortages caused by an aging society. Those reaching their retirement age, but still in good physical conditions, can choose to prolong their working life under a flexible, voluntary system rather than a mandatory one. In addition, countries such as Sweden do not reduce the total benefit the pensioners can receive, no matter whether they retire at 60 or 65. The only difference is that those who retire earlier get less per-month payout than those who retire later.
It's also true that some European countries have included retirement age extensions into their austerity policies due to the recent sovereign debt crisis. However, this measure was one of last resort from desperate governments, and their hands were forced to tighten up spending in order to receive EU bailouts. Nevertheless, such a policy hasn't proven successful so far, and still more European countries are on the way to economic collapse.
By contrast, China does not have the problem of severe labor shortages with its tremendous population size of more than 1.3 billion. Currently, China has a working population of about 900 million, with nearly 100 million unemployed. Even if more people will be in retirement with the population's demographic shift, the country will still have a workforce of 700 million to 800 million.
Most importantly, it should be pointed out that there won't be any way out if the government only collects more pension funds from the individuals but tries to reduce the amount given out to them. The reasons are as follows: First, our pension system includes the current pensioners who have never contributed when they were young, as well as some others who are reaching their retirement age but haven't contributed enough to their individual accounts. Second, a self-sustaining social security system should rely on contributions from new workers and from effective investments. However, there are right now more pensioners than contributors in an aging society, and it's difficult for the pension funds to weather inflation through investments in a gloomy capital market.
At its core, caring for a country's senior citizens is more of a wealth distribution problem than an insurance problem. The government can tackle the growing deficit in China's pension funds by implementing a more balanced distribution system rather than imposing heavier burdens on the public.
There are two factors affecting how seniors can enjoy their golden years: the amount of wealth the society has accumulated when any given person retires and how much of this wealth the government spends to care for the retired. Only when the policymakers take these factors into consideration can they map out a more practical social security program to address the current difficulties faced by the pension system. When the aging population reaches its peak, the government can make efforts to improve the productivity of the 700 million to 800 million people still in the workforce, which could help to generate even greater social wealth. With that, the government can take better care of the elderly through various rational social distribution approaches.
In addition, the social insurance channels have gone far beyond collection of insurance payouts and individual contributions. In 2011, governments at various levels made a total financial investment of 227 billion yuan (US$36 billion) for the pension program for employees in urban areas, accounting for 13.4 percent of the total funds collected for the pension program and 17.8 percent of funds distributed, respectively. In terms of the pension plan for residents in the urban and rural areas, the government's segment amounted to 65.5 billion yuan (US$10.4 billion), accounting for 61.2 percent of the total funds collected and 111.4 percent of funds distributed.
In theory, a social security system should be based on contributions from employees, employers and the government, who should assume a leading role. In an aging society, it's the government's duty to break out its wallet and ensure that the elderly can enjoy their golden years.
The author is a researcher with the Social Policy Research Center, Chinese Academy of Social Sciences.
(This post was published in Chinese and translated by Zhang Junmian.)
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