Those born in the 1980s could be the first generation in modern China to get no pension when they retire in 25-30 years if the gaping hole in the country’s pension balance sheet cannot be filled.
Dire forecasts have been made by authorities about the untenable standing of pension and social security funds as retiree ranks swell and the population grays more quickly than policymakers and demographers expect.
The Chinese State Council announced a five-year scheme this month to gradually push back the retirement age, starting with female workers, who at present can start to see out the final months of their working life at the relatively young age of 49 to 50. The ultimate goal is to align the retirement age for both genders to 60 and even push it to 65 by 2030.
The reason is the ballooning shortfall in pension and social security fund payments, with reserves and the aggregate balance set to dry up in about 2035, according to a report released by the Chinese Academy of Social Sciences and the Ministry of Human Resources and Social Security’s National Council for Social Security Fund.
Millennials, born in the 1980s and 90s, may be unable to live off state welfare and pensions when they retire, the report said.
The actuarial report on China’s pension accounts also revealed that, even after factoring in government injections, the country’s pension balance of 106.29 billion yuan (US$16.1 billion) as of the end of 2019, would sink into the red in 2028. By 2050, the shortfall in payments is forecast to snowball to more than 11 trillion yuan.
Worse still, a number of western and northeastern provinces such as Liaoning and Jilin, known as China’s “rust belt,” are in financial straits. They would have defaulted on pension and welfare payments already, had it not been for central government cash aid over the years.
Payments to retirees in 16 provinces and autonomous regions from Xinjiang to Heilongjiang hinged on such transfer payments last year as Beijing shifted funds from better-off provinces and municipalities such as Zhejiang, Jiangsu, Guangdong and Shanghai to make up shortfalls.
Perpetuating the financial woes is that major recipient provinces of such transfer payments are also seeing sharp declines in their labor forces as well as fertility rates. China’s northeastern provinces, for instance, are already grappling with a birth rate that is reputedly among the world’s lowest while the steady outflow of workers in their prime from these provinces also means a hollowing out of labor forces that make major contributions to pension funds.
Yi Fuxian, a demographer at the School of Medicine and Public Health of the University of Wisconsin-Madison, said in a 2018 report that the total fertility rate, or the average number of babies a woman will have over her lifetime, in Liaoning, Jilin and Heilongjiang stood at an alarmingly low level of 0.55 in 2015. In Liaoning alone, more than 14% of its population were aged 70 or above in 2018. The three northeastern provinces have seen an outflow of about 2 million people since 2010, most of whom are prime-age workers.
But even well-off provinces are seeing a big drain on their pension funds as their populations age. Overall, there were 254 million residents aged 60 or above across China, more than 18% of the population, according to the National Statistics Bureau.
“Beijing is robbing Peter and giving Paul but when even rich coastal economic powerhouses like Guangdong and Zhejiang are facing mounting pressure to give priority to their own retirees as their populations age quickly, Beijing will have little recourse but to broach the idea of postponing retirement ages, no matter how unpopular the plan will be,” said Eric Mar, an assistant professor with the Peking University’s School of Governance.
Mar said Beijing’s message with the retirement postponement proposal was clear. If you do not want to work for a few years more, you will see your pension slashed or even get nothing.
Now, calls to slash transfer payments from rich regions to “rust belt” provinces are resonating across China, as policy experts suggest that workers in major recipient provinces should take the lead to delay their retirement.
The Southern Daily, the mouthpiece of the southern Guangdong province, revealed that a report had been submitted to the central leadership to urge Beijing to introduce more stringent fiscal and pension bookkeeping policies in recipient provinces such as Heilongjiang as the prerequisite for continued transfer payments from Guangdong.
Beijing is also being prodded to scrap the discriminatory age cap when recruiting civil servants. Applicants aged above 35 are now disqualified, regardless of their talent, experience or other credentials.
“When Beijing is asking people to work longer, then it should first take the initiative to tackle the rampant age discrimination on the jobs market, where almost all employers set the maximum age limit at 35 or even 30,” an op-ed by Xinhua said.
“When China’s new labor supply is set to drop as a result of the strict enforcement of the one-child policy since the 1970s, Beijing must strive to create a better environment for mature persons in their 30s, 40s and 50s.”
Previous reports said big tech companies such as Tencent and Alibaba had started to pension off “elderly staff” aged above 35.