CHINA wants young people to put money away for retirement. Tao Swift, an unemployed 30-year-old, is not interested in hearing it. “Retire with a pension?” he asked. “I don’t hold much hope that I can definitely get my hands on it.”
Tao, who lives in Chengdu, is not alone in thinking this way. On social media forums and among friends, young people are questioning whether to save for old age. Some are opting out, citing the shortage of jobs, low pay and their ambivalence about the future.
Their scepticism betrays the enormous challenge for China’s leaders. Over less than three decades, the country has changed from a young society to an ageing one. Seven straight years of plummeting births are pushing up the day when there will be fewer people working than retirees.
The fast-changing demographic profile is putting tremendous strain on the existing underfunded pension system. An average retirement age of 54, among the lowest in the world, has made this stress more acute. A grinding economic slowdown is leaving many out of work or with little room to put money aside.
The country has passed a demographic Rubicon just as many other countries have before it. The problem of underfunded retirement programmes is not unique to China, either. But its demographic and economic troubles are colliding, shaking confidence in the pension system.
China is ageing so quickly that over the next quarter century, 520 million people, or nearly 40 per cent of its current population, will be older than 60. And over the next decade the public pension will run out of money, according to the Chinese Academy of Social Sciences, a government research institution.
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“Because of the ageing population, people are sceptical about their future pensions,” said Tao Wang, the chief China economist at UBS. “They worry that in the future the payout would be less.” China’s leaders could begin to tackle the problem by raising an “alarmingly low” retirement age, Wang noted. They have talked about doing so gradually, but haven’t yet taken action.
Recent history has also contributed to the problem. Until the 1980s, China had a planned economy, and state-owned enterprises paid salaries to workers until their deaths. As officials took on market-oriented reforms, they also set out to create a more inclusive pension system. In the first decades after China opened its economy to the world, the Communist Party prioritised growth, forgoing the investment needed to build a broader social safety net. And as officials reformed state-owned enterprises in the 1990s, millions lost their jobs.
Officials began to create a new pension system that would eventually cover most of the population under three pillars. The first is a public and mandatory programme that has the largest enrolment, with just over one billion people. It is made up of a basic plan for the jobless in rural and urban areas, as well as migrant workers, covering more than 550 million people, and an employment-based plan that covers 504 million employees.
The second pillar of China’s pension system is private and employment-based. It is voluntary for companies and covers far fewer people. The third and most recent, also private and voluntary, is a personal pension. It was introduced in 2022. With the public pension coming under more financial stress, officials started offering tax benefits much like an individual retirement account in the United States.
The rollout of private pensions, which are still in pilot programmes in dozens of cities, coincided with alarming news: China’s population was beginning to shrink for the first time in its modern history.
Working professionals such as Xuan Lu, 27, are required to contribute part of their salary to one of the public pensions. Xuan, an exhibition planner in Beijing, said that he didn’t think too much about the 5 per cent of his income that is set aside each month.
But over the past year another problem has emerged: More people are pausing their contributions or simply opting out. “The number of people who have decided tactically not to contribute or join the system is quite large,” said Dali Yang, a professor at the University of Chicago. “It has gone up very substantially.”
Experts also caution that if China doesn’t change the retirement age, it will need to reduce the benefits, which they say may be too generous in some cases. In 2022, the national average monthly payment for the public employment pension was US$500, and just US$28 for the basic state pension. But the contributions and benefits varied drastically depending on the city and province.
There are thousands of different pension plans, and each is managed by a local authority. How much retirees receive is linked to a local government’s finances and the size of a given pool of pensioners. Some pensions have as few as 30,000 participants, according to one study. In some prosperous regions, as many as eight workers support each retiree. But in poorer areas, there are about two workers for every retiree.
With pressures mounting, worried Chinese officials and experts have taken to nagging young people to save and enrol in the private pension scheme. For some young people, the urgent calls are backfiring. “Their appeal has a reverse effect,” said Lumiere Chen, 27, a private insurance agent in Beijing whose customers are around 35. “We are annoyed by more and more appeals.”
Even those a little older are not easy to persuade. “To be honest, I don’t expect to be living on my retirement salary and covering my future retirement life with it,” said Leon Li, 37, a driver for Didi. Li lost his job at a market research firm last year after working there for more than a decade. He had a pension with the company that he will continue to pay into for the next two years to meet the minimum 15-year threshold to qualify for benefits after retirement.
By contrast, Cesar Li, 27, hasn’t enrolled in the basic public pension plan because, he said, it is too expensive. Li, a freelancer, explained he had noticed that more older people were claiming pensions and fewer young professionals were paying into the system. He echoed a concern that other young people have expressed – that their retired parents or grandparents sometimes receive twice the salaries of their working family members.
Cesar Li and his friends sometimes discuss the future, he shared, and joke about who will take care of them when they are old. “We may end up alone and die at home,” he added. With fewer young people and more old, the gap between workers and retirees will only get bigger. “This can only be left to fate,” Li said. “I have no control over it.” NYTIMES
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