China Approves Retirement Age Reform to Address Economic and Workforce Challenges

China’s top legislative body has approved a proposal to raise the country’s retirement age, the official Xinhua news agency announced on Friday. 

This decision accelerates the overhaul of long-standing laws aimed at addressing the economic pressures caused by a shrinking workforce.

Currently, China's retirement ages are among the lowest in the world. With life expectancy rising from about 44 years in 1960 to 78 years by 2021, and projected to exceed 80 by 2050, reform is seen as urgent. Simultaneously, the number of working-age people supporting the elderly continues to decrease, intensifying the strain on the country's economy.

The approved reform will see the retirement age for men raised to 63 from the current 60. For women in white-collar jobs, the age will increase to 58 from 55, while women in blue-collar work will see their retirement age rise to 55 from 50. The changes are scheduled to take effect on January 1, 2025, with gradual implementation over the following 15 years.

Extending working years could help alleviate pressure on pension funds, many of which are already experiencing significant deficits. 

However, while it may ease the financial strain on pension systems, not all workers are likely to welcome the delay in pension payouts and the requirement to work longer. Concerns about job availability are also prevalent, with hundreds of thousands of people expressing worry on social media following Xinhua’s report. 

Many fear increased competition in the job market as more older workers remain employed.

By raising the retirement age, the government aims to increase labor force participation, a key strategy to counter the adverse effects of population aging. Xiujian Peng, a senior research fellow at the Centre of Policy Studies at Victoria University in Australia, highlighted the necessity of action: "If the population continues to decline, the shrinking of the labor force will accelerate, further negatively impacting economic growth."

Xing Zhaopeng, a senior China strategist at ANZ, acknowledged that while the reform may have limited short-term impact, it is essential for maintaining stable productivity in the long term.

Pension Challenges

Wang Xiaoping, Minister of Human Resources and Social Security, announced that the retirement age would be raised gradually, starting next year, but with the full transition spanning over 15 years. She added that the process would be flexible and voluntary, allowing workers to retire earlier or extend their working years by up to three years.

China’s outdated retirement laws have already contributed to a growing number of retirees and a declining active workforce. According to Bruce Pang, chief economist for China at Jones Lang LaSalle, the authorities expect the number of citizens aged 60 and older to rise from 280 million to over 400 million by 2035—equivalent to the combined populations of Britain and the United States.

Eleven of China's 31 provincial-level jurisdictions are currently running pension budget deficits, according to data from the Finance Ministry. The Chinese Academy of Sciences has warned that without further reform, the pension system could run out of funds by 2035.

China’s move aligns more closely with its regional peers, such as Japan and South Korea, where the retirement ages are 65 and 63, respectively. These changes underscore China's efforts to modernize its labor and pension systems, ensuring sustainability as its population continues to age.