Beijing: Facing a mounting pension crisis and a rapidly aging population, China has introduced a five-year retirement reform blueprint following the Chinese Communist Party’s (CCP) Third Plenum meeting. The plan, which aims to address the challenges of an aging workforce, includes a gradual increase in the statutory retirement age for over 500 million workers, introducing the concept of “voluntary participation with appropriate flexibility.”

While the language used in the reform blueprint may appear vague, it is intended to soften the impact of these changes, according to reports from The Epoch Times. The dual pressures of an aging population and declining birth rates, coupled with sluggish economic growth, are straining China's social security and pension system.

The blueprint, outlined in a resolution adopted by the CCP's 20th Central Committee, marks the first time key principles of the retirement reform have been officially documented, signaling that the long-discussed initiative may soon be implemented. According to Nikkei Asia, China will gradually increase the retirement age based on a principle of "voluntary participation with appropriate flexibility."

China's current retirement age, set at 60 for men and between 50 and 55 for women, is among the lowest globally. By comparison, the retirement age is 62 in the United States and 66 in Germany. Despite unchanged retirement rules since 1951, life expectancy in China has risen from 67.9 years in 1981 to 78.2 years in 2021, adding further strain to the pension system.

Unlike countries such as the U.S., where many retirees benefit from private pensions or employer-funded retirement plans alongside state social security, most urban workers in China rely solely on state pensions. The country’s rapidly aging population and longer life expectancy are becoming a significant burden on the system. According to mainland China-based business magazine Caixin, China’s elderly dependency ratio increased from 12.7% in 2012 to 20.8% in 2021, meaning that every 100 workers had nearly 21 retirees to support, up from 13 in 2012.

At the current pace, China’s state pension funds are projected to be depleted within a decade, raising the urgency for Beijing to reform and bolster its public pensions. MarketWatch, a publication owned by Dow Jones & Company, warns that China is approaching a demographic time bomb, with one of the lowest fertility rates in the world and a shrinking, aging population.

The number of working-age Chinese (those aged 15 to 64) is expected to shrink by about 170 million over the next 30 years, while the population aged 65 and over will surge to nearly 380 million, marking China as a "severely aging" society, according to the International Monetary Fund (IMF). The declining birth rate exacerbates the situation, with the number of new-borns in China continuously declining since 2017, leading to a shrinking population in 2022. Last year, India surpassed China as the world’s most populous country.

The CCP’s gradual approach to reform reflects its concerns over social stability amidst declining economic growth prospects. Although the idea of raising the retirement age was first proposed in 2023, concrete details have been slow to emerge. In March 2015, then-Minister of Human Resources and Social Security Yin Weimin stated that a delayed retirement plan would be formulated that year, but implementation would take at least five years. However, no significant progress was made until October 2020, when delayed retirement was included in the reform agenda of China’s 14th Five-Year Plan.

In March 2022, China introduced reforms to pool regional and provincial pension funds, transferring resources from regions with a surplus to those with deficits. Despite these measures, the CCP has been slow to roll out comprehensive reforms, reflecting its caution in managing potential social unrest.

As China grapples with these demographic challenges, the sustainability of its pension system remains in question. The CCP’s latest blueprint is a step toward addressing the crisis, but whether it will be sufficient to prevent a looming pension collapse is yet to be seen.