China’s demographic time bomb may not come to pass, with pension moves offering hope
Kevin Martin says Beijing’s move to raise the retirement age and a shift by workers to save earlier for old age will help mitigate the state pension shortfall
China’s policymakers are confronting the country’s rapidly ageing profile and shrinking workforce by raising the official retirement age which has been in place since the 1950s.
This is a sensitive issue in a country where people have long depended on government and their families to sustain them in old age – retirees in China rely more heavily on state funding than most other countries. But to China-watchers and investors, it can only be a good thing that the country is taking a responsible approach to addressing a substantial deficit in individual pension accounts.
Chinese workers have grown accustomed to rising prosperity. But as change approaches, they have also been exposed to years of reports highlighting the need for reform through statistics showing that, for example, nearly four in 10 Chinese will be over 60 by the middle of the century.
So how well have the Chinese grasped the “new normal” that is putting pressure on pension systems around the world? The answer appears to be, very well. Working-age Chinese expect to save for 14 years longer than those who have already retired, research published last week shows. That equates to 23 years of saving, up from nine years for current retirees.
The solution to China’s demographic time bomb lies in changing age-old attitudes
This is the highest “retirement gap” between generations in the world, but it doesn’t necessarily mean working longer. Working-age Chinese are now starting to save for retirement 13 years earlier than their parents’ generation. This provides hope for China’s pension system and represents a paradigm shift in retirement thinking.