The Changing of Old Age Support and Retirement-Age Policy Discussion - - PowerPoint PPT Presentation

The Changing of Old Age Support and Retirement-Age Policy Discussion in China

Ling Li

Peking University

Qiulin Chen

Chinese Academy of Social Sciences Xu Wang Peking University

June, 2013

Motivations

• China is facing a fast ageing as a developing country with

largest population.

• Decrease of labor force supply and risk of bankruptcy of

Pension are both important factors of China’s sustainable economic development.

• Raising retirement age has come into the public horizon

and been a policy choice that Chinese government could choose.

• What is the status quo? Does such a policy will ease the

problems? What could be expected if China raise retirement age?

• NTA provides an perspective of economic retirement which

is not only about retirement age, but also lifecycle economic support.

Contents

• I. Backgrounds: Demographic transition and

Economic Challenges in China

• II. Challenges of Old Age Support in China

– Sources of Financial Support for the Elderly (65+) – Decreasing of working life and Economic Retirement age

• III. Effects of Extending Retirement Age
• IV. Policy Discussion

• I. Demographic transition and Economic

Challenges in China

• 1. Demographic transition in China

Fast “original demographic transition”‐‐ a process with decreases in mortality followed, usually after a lag, by decreases in fertility Fast new kind of demographic transition‐‐ additional years of life being realized late in the life, saying a longevity transition

China is moving fast towards a aging society :

fertility decline and mortality decline leading to a decrease in the population of non‐working young and a decrease in total dependency, followed by an increase in the population of non‐working old that leads to an eventual increase in total dependency.

Source: Karen Eggleston & Victor Fuchs, “The New Demographic Transition: Most Gains in Life Expectancy Now Realized Late in Life”, Journal of Economic Perspectives summer 2012.

Sources：Data before 2009 are from Development Planning and Information Division of National population and Family Planning Commission & China POPIN (2010). Data of 2010 is from Chinese Population Census Office of State Council (2012).

2.31 2.31 1.18 1.4 1.6

1 2 3 4 5 6 7 8

Statistical report Academic research (low) Academic research (high)

TFR in China: 1950‐2010

TFR fell sharply in early 1990s. It has long kept at very low level. Policy on encouraging later marriage and fewer children Socioeconomic change? Sixth Census

The Longevity Transition in Asia and Select Developing Countries

Country Change in years lived past 65 as a percentage

• f change in life expectancy at birth,

1990‐2010 Male Female Japan 72.7% 87.0% South Korea 45.4% 57.1% China 51.9% 40.6% Philippines 26.2% 36.0% Indonesia 26.1% 35.7% Brazil 34.2% 35.0% Vietnam 32.5% 34.7% India 23.6% 25.8% Bangladesh 20.7% 25.4%

Source: Karen Eggleston & Victor Fuchs, “The New Demographic Transition: Most Gains in Life Expectancy Now Realized Late in Life”, Journal of Economic Perspectives summer 2012.

“Ageing before wealthy”

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000

1…

女

2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000

10 20 30 40 50 60 70 80 90 100+

男 200 400 600 8001,000 1,200

1…

女

200 400 600 800 1,000 1,200

10 20 30 40 50 60 70 80 90 100+

男 0 50 100 150 200 250 300 350 400 450 500

10 20 30 40 50 60 70 80 90 1…

50 100 150 200 250 300 350 400 450 500

10 20 30 40 50 60 70 80 90 100+

男 女

Japan 1973 $3000 Korea 1987 $3000 China 2008 $3000

Economic Challenges

Age structure in China (2010)

‐15% ‐10% ‐5% 0% 5% 10% 15% 0‐4 10‐14 20‐24 30‐34 40‐44 50‐54 60‐64 70‐74 80‐84 90‐94 100+

Female Male

Source: The sixth population census

Potential Growth Rate after the First Demographic Dividend

According to Cai Fang’s Research

Debate on Extending Retirement Age in China

• The MOHRSS announced in June 2012 that it will

gradually raise retirement age.

– the shortage of labor forces and social security funds under ageing. – Official retirement age: 60 for men; 55 for female civil servants; 50 for female workers. Real retirement age: 53.

• Proposed by the government officials but against

by most of the public.

• Shortly after June, the MOHRSS denied such a

policy change. But the debate about retirement age continues.

• II. Challenges of Old Age Support in China
• 1. Sources of financial support for the elderly

(65+)

• Support system for the elderly

– Labor income – Public transfers

• Medical care

– Familial transfers – Lifecycle saving

Source: Andrew Mason

Sources of financial support for the elderly (65+) in China

62.2 51.8 42.7 38.5 25.3 19.8 28 19.5 16.3

‐20 20 40 60 80 100 120

60+ 65+ 75+ 60+ 65+ 75+ 60+ 65+ 75+ 1995 2002 2007

Health (Public) Pension Benefits Other Public Transfers Private Transfers Asset Labor Income

Labor income: decreasing

Sources of financial support for the elderly (65+) in China

2.29 3.15 4.01 8.81 11.4 13.7 13.4 15.8 19.7

‐20 20 40 60 80 100 120

60+ 65+ 75+ 60+ 65+ 75+ 60+ 65+ 75+ 1995 2002 2007

Health (Public) Pension Benefits Other Public Transfers Private Transfers Asset Labor Income

Public transfers: increasing

Sources of financial support for the elderly (65+) in China

11.5 23.1 51.5 8.98 13.5 33.3 18.7 16.3 28.5

‐20 20 40 60 80 100 120

60+ 65+ 75+ 60+ 65+ 75+ 60+ 65+ 75+ 1995 2002 2007

Health (Public) Pension Benefits Other Public Transfers Private Transfers Asset Labor Income

Private transfer: decreasing

Sources of financial support for the elderly (65+) in China

8.08 5.1 ‐9.66 16.1 18.4 5.23 18.7 19.6 11.4

‐20 20 40 60 80 100 120

60+ 65+ 75+ 60+ 65+ 75+ 60+ 65+ 75+ 1995 2002 2007

Health (Public) Pension Benefits Other Public Transfers Private Transfers Asset Labor Income

Lifecycle saving: increasing

Old‐Age Support Systems in China and Some Other Asian Economies

Source: data from NTA website

• Family support is still a

main living source of the elderly.

• But China is moving

quickly to a so called modern market economy with Increasing public transfers (with broader social welfare).

25 50 75 100 100 100 75 75 50 50 25 25

• S. Korea 2000

Philippines 1999 Japan 2004 China 1995 China 2002 China 2007

Old-age (65+) Reallocation System, Selected Economies

Asset-based (%) Public transfers (%) Family Transfers (%) US 2000 Thailand 1996 Japan 1999 Taiwan 1998

• II. Challenges of Old Age Support in China
• 2. Decreasing of working life and Economic Retirement

age (1995‐2009) Increasing higher education, with no increase in retirement age, so shorter working life; increasing support for elderly; resulting in increasing total LCD. Official retirement age Real retirement age Economic retirement age (consumption equals labor income)

Changes in the Lifecycle Deficit in China

‐1 ‐0.8 ‐0.6 ‐0.4 ‐0.2 0.2 0.4 0.6

2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90+

Changes in Lifecycle Deficit, 1995 and 2002, China

Normalized to average labor income of 30‐49 year olds 1995 LCD 2002 LCD

4037 years Shorter working life with higher peak income Increasing higher education Increasing support for the elderly 20 60 23

Changes in the Lifecycle Deficit in China

‐1 ‐0.8 ‐0.6 ‐0.4 ‐0.2 0.2 0.4 0.6

2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90+

Changes in Lifecycle Deficit, 1995 ‐ 2007, China

Normalized to average labor income of 30‐49 year olds 1995 LCD 2002 LCD 2007 LCD

4037 years Shorter working life with higher peak income Increasing support for the elderly 20 60 23 21 58

Changes in the Lifecycle Deficit in China

‐1.2 ‐1 ‐0.8 ‐0.6 ‐0.4 ‐0.2 0.2 0.4 0.6 0.8

2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90+

Changes in Lifecycle Deficit, 1995 ‐ 2009, China

Normalized to average labor income of 30‐49 year olds 1995 LCD 2002 LCD 2007 LCD 2009LCD

4035 years Shorter working life with higher peak income Increasing higher education Increasing support for the elderly 20 60 23 21 56

Working Life Changing in China and Some Asian Countries

Lifecycle Deficit

Cutting Ages Working Life Cutting Ages Working Life 1995-2002 20 60 40 23 60 37 3 2002-2007 23 60 37 21 58 37 2007-2009 21 58 37 21 56 35 2

Lifecycle Deficit Cutting ages Working Life Lifecycle Deficit Cutting ages Working Life Japan 2004 26 60 34 Thailand 1996 25 59 34

• S. Korea 2000

24 56 32 Thailand 2004 26 58 32 U.S. 2003 26 59 33 Philippines 99 27 60 33 India 1999 27 63 36 Indonesia 99 28 59 31 India 2004 27 59 32 Indonesia 05 29 58 29 The working life was getting shorter as in some other Asian NTA countries, but China’s was still longer than in these other countries.

Source: NTA dataset

Consumption is under calculated?! Working life is over estimated?

Source: Li Daokui and Xu Xiang (2012), The Rebalancing of the Chinese Economy

Effects of Extending Retirement Age

5000 10000 15000 20000 25000 30000 35000 40000 45000

100 million yuan, 2000 constant prices

Projected LCD with Demographic Change, 1995‐2050

Projected LCD since 1995 only with DE Projected LCD since 2002 only with DE Projected LCD since 2007 only with DE Projected LCD since 2009 only with DE

Projected LCD by raising retirement age 1‐3 years

10000 15000 20000 25000 30000 35000 2015 2018 2021 2024 2027 2030 2033 2036 2039 2042 2045 2048 100 million yuan Projected LCD based on 2007 LCD Extending 1 year Extending 2 year Extending 3 year

New jobs needed by raising retirement age

500 1000 1500 2000 2500 3000 10 thousand Extending 1 year Extending 2 year Extending 3 year Baseline: labor force participation in 2010.

• IV. Discussions
• In short term, raising retirement age do not affect

much on lifecycle deficit, because the elderly have lower labor income. The direct effect is to decrease the payment of pension and lower the pension deficit.

• In long‐run, raising retirement age is a priority of

policy choices to support sustainable development, but it need multiple supporting policies.

– The older the person is in China, the lower their level

• f education is. How to create enough job for theme?

– Easing family planning policy to increase the fertility rate or stop its deceasing is also an urgent policy issue

THANKS!