Op-Ed Contributors

Debate: Retirement age

(China Daily)
Updated: 2010-10-18 08:04
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Should the retirement age be increased? Possibly, provided the government strikes the right balance between working age and economic development, say two experts.

Peng Guanghua

Problem needs handling with care

The Ministry of Human Resources and Social Security has denied that it is planning to increase the retirement age. But despite that, the debate over the retirement refuses to die. What seems to have added fuel to the fire is the introduction of a policy in Shanghai as of this month, which gives urban male workers the option of continuing to work till the age of 65 (women can continue working till 60), indicating a five-to-10-year flexible extension period.

The need to defer the retirement age has arisen mainly because of the shortage of social security funds. Shanghai has the highest ratio of senior citizens among Chinese cities. Its new policy therefore can be seen as a move to find a way to adjust its pension payments. Estimates show that if the retirement age is deferred by a year, the national social security fund would get an extra 4 billion yuan ($602.27million) and expenditure would be cut by 16 billion yuan. The shortage would thus be reduced by 20 billion yuan. But whether or not it would be a one-time solution to the retirement age problem is open to discussion.

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Let's check out some facts. The national social security fund now has a shortfall of about 6.71 trillion yuan.The reduction would be 20 billion yuan, a little more than a drop in the ocean. In contrast, an increase in the retirement age could create a series of problems, the most serious being the dearth of jobs for young people. This means increasing the retirement age for some narrow financial gains could result in more pain than gain.

Besides, adjusting the social security system is no small matter. It has to be done with discretion, and no country's government can think of doing so without paying a price. Perhaps no one knows that better than former British Prime Minister Margaret Thatcher.

Thatcher introduced social security reforms after she won her third successive election. But as soon as she did so she started losing her popularity, for the reform seemed to offend vested interests. Not only did the opposition Labour Party rebuke her, but also many within her own Conservative Party demanded her resignation.

The retirement age in China may be lower than in many other countries. But that alone is not a strong enough reason to increase it. Developed countries generally tap several sources for social security funds. Their natural resources and the money they make from auctioning state-owned assets provide financial support for social security reform. China enjoys a great advantage in this respect, because its State-owned assets are huge, which include the income from State-owned resources and the profit made by State-owned enterprises (SOEs).

In 2006, China's large SOEs gained about 1 trillion yuan, a handsome amount to fill the financial shortfall in the social security fund. Its lottery industry is a great source of revenue, too, which alone contributed a massive 18.8 billion yuan to the national social security fund in 2008.

At present, employees in China can decide not to contribute their share to the social security fund. So there is scope for changing "social security fees" into a mandatory social security tax to ensure a smooth flow of funds for the social security system.

An adjustment of social security is matter of concern and should be dealt with comprehensively, not just by increasing the retirement age. Whether or not the retirement age should be increased is a question that calls for proper deliberation. The government should encourage a thorough public discussion on the issue, especially between employees and employers, before making a decision.

A thorough public discussion could help policymakers detect the strong points and defects of a policy, making it easier for its implementation. And since an increase in the retirement age concerns the interests of almost everyone in society, it is important that the public discuss it thoroughly before a new retirement age is fixed.

There is indeed a strong case for increasing the retirement age in China. The existing superannuation system was introduced in 1978. But people's physical fitness and capacity to work have improved greatly since then. According to the national census, the Chinese people's average life expectancy rose from 67.9 years in 1981 to 71.4 years in 2000. And because the average life expectancy may have risen further in the past 10 years, there is enough ground for increasing the retirement age.

Moreover, increasing the retirement age would help people to realize their right to work longer.

But any increase in the retirement age should strike a balance between different sets of workers, because they hold different views on work and retirement.

For some high-end workers, work means fulfilling a "higher need", the need for earning respect. But the condition of people who get paid very little for their work is completely different. For the majority of these people, work means physical labor. They would prefer to retire and have a less stressful life provided they get a decent pension, and thus oppose any increase in the retirement age.

But surprisingly, many young Chinese, too, oppose the idea. The story is similar in France. People between the ages of 18 and 24 in France are the major opponents to any increase in the retirement age.

This is understandable because the higher the retirement age, the less jobs there are for the young.

Striking the right balance between the pros and cons of increasing the retirement age is thus of utmost importance.

The author is a professor at the School of Labor and Human Resources, Renmin University of China.

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