When China introduced old age pensions in 1951, life expectancy was in the low forties.
So it seemed reasonable that men who made it to the ripe old age of 60 and women who reached 55 should get some financial support in their dotage.
Sixty years on and average life expectancy has almost doubled. Coupled with the fact that fertility rates have also dropped because of the One Child Policy, that poses a problem – how will China support its rapidly aging population?
Complicating the issue is a pension system that has never really found its feet. For a long period, pensions were given only to government employees or workers in state-owned enterprises, as well as those with an urban hukou (the term for China’s household registration system).
In 2009 the government began to roll out old-age benefits to those outside that group, including China’s huge rural population.
A coup for social equality, but a massive additional burden for a system which was already struggling to meet its obligations.
A report co-authored by Bank of China predicted that these commitments would amount to Rmb18.3 trillion ($2.89 trillion) next year, well beyond the funds available. If current trends remain constant, the figure will increase to Rmb68.2 trillion by 2033, or about 39% of GDP, Xinhua reported.
Part of the solution, says China’s Ministry of Human Resources and Social Security, is to raise the official retirement age, probably to 65 for men and 60 for women. That’s a move that would put China in line with most Western countries (barring France, which seems to be heading in the opposite direction).
But an attempt to start an official “public consultation process” on the subject this month was met with howls of disapproval.
An online survey by the People’s Daily found that over 93% of respondents were against the extension. Some netizens have also been claiming that changes to retirement ages would bring people out onto the streets.
“There will inevitably be a day when the powder barrel explodes!” one Sina Weibo user wrote.
Newspapers initially tried to sell the idea to the public, warning that China did not want to go the way of the eurozone, “betting on debt and external aid to keep its social security network going”.
But as public anger on the issue became clearer, much of the media changed tack, warning the government to tread carefully.
“This issue involves the vital interests of millions of people,” the People’s Daily cautioned. “It must be carefully considered and public opinion should be given due respect.”
Other newspapers asked if there wasn’t another way to meet the costs, perhaps by cutting back on wasteful projects or making state-owned enterprises contribute more.
The Global Times even suggested that government was at fault for running the existing system poorly.
“The majority of China’s pension funds have been channelled into low volatility, fixed income investment products whose returns have failed to keep pace with inflation gains,” it said.
The newspaper added that only 11 fund management companies have been allowed to handle pension funds, five of which control 85% of the total.
Other newspapers suggested that extending the retirement age would also make it harder for the young to find jobs – increasing the pressure on those who already have two parents and four grandparents to care for.
“China creates between 10 and 12 million new jobs annually, of which about 3 to 4 million are vacancies left by retirees,” Xinhua said.
Statistical arguments aside, it’s clear many Chinese feel that the government has squandered the public’s trust on the issue of retirement and pensions.
This sentiment was epitomised by a comment from a Shanghai-based weibo user: “Thirty years ago you told us, ‘family planning is good, the government will take care of your pension’, and we believed it. Twenty years ago you changed it to ‘family planning is good, as the government will help provide for the aged’, and we could still accept it. Ten years ago you subverted the past promise and turned it into ‘we cannot rely on the government for a pension, but should implement the social security scheme’. Now we are old, and you say the pension is not enough and you ask us to continue working till we die!”
© ChinTell Ltd. All rights reserved.
Exclusively sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.