China wants young people to save money for retirement. Tao Swift, a 30-year-old unemployed man, has no interest in hearing about it.
“Retire on a pension?” he asked. “There’s not a lot of hope that we’re going to get it for sure.”
Tao, who lives in the southern city of Chengdu, is not alone in thinking this way. In social media forums and among friends, young people are wondering whether they should save for retirement. Others quit their jobs due to lack of work, low pay, and uncertainty about their future.
Their skepticism represents a major challenge for China’s leaders. In less than 30 years, the country has transformed from a young society to an aging society. With the number of births plummeting for seven consecutive years, there are fewer working people than retired people sooner or later.
Rapid demographic changes are placing enormous strain on China’s existing underfunded pension system. This stress is compounded by the fact that the average retirement age is 54, the lowest in the world.
The severe economic slowdown, the worst since China embraced capitalism 40 years ago, has left many people out of work and with little room to save money.
China has crossed the demographic Rubicon, just as many other countries have passed before. The problem of underfunded retirement plans is not unique to China either. But China’s demographic and economic challenges are colliding, and confidence in the pension system is being shaken.
China is aging rapidly, with 520 million people, nearly 40 percent of the current population, expected to be over 60 years old over the next quarter century. And according to the Chinese, public pensions will be depleted in the next 10 years. Academy of Social Sciences, government research institute.
“Because of the aging population, people are skeptical about their future pensions,” said Tao Wang, chief China economist at UBS. “They are worried that their future payments will be lower.”
Chinese leaders could begin to address the issue by raising the “stunningly low” retirement age, Wang said. They are talking about doing so in stages, but have not yet taken action.
Recent history also contributes to the problem. Until the 1980s, China had a planned economy, with state-owned enterprises paying workers until they died. While officials committed to market-oriented reforms, they also began creating a more comprehensive pension system.
In the first decades after China opened its economy to the world, the Communist Party prioritized growth and abandoned the investments needed to build a broader social safety net. And when authorities reformed state-owned enterprises in the 1990s, tens of millions of people lost their jobs.
The authorities set out to create a new pension system that would eventually cover the majority of the population under three pillars. The first is the public and mandatory program, which has the largest number of enrollees, at just over 1 billion. The plan consists of a master plan for unemployed and migrant workers in rural and urban areas, which covers more than 550 million people, and an employment-based plan, which covers 504 million employees. It has been.
The second pillar of China’s pension system is private employment-based. It is voluntary for companies and covers far fewer people.
The third and most recent one, also a private voluntary pension, is the Personal Pension.it was introduced As the financial burden on public pensions increases, authorities have begun offering tax breaks similar to those offered by individual retirement accounts in the United States.
The introduction of private pensions, which are still in pilot programs in dozens of cities, coincides with alarming news that China’s population is starting to decline for the first time in modern history.
Working professionals like Xuan Lü, 27, are required to contribute part of their salary to one of the state pensions. Xuan, an exhibition planner in Beijing, said she doesn’t think much about the fact that about 5% of her income is set aside each month.
“It’s too early to worry about these things,” he said.
But over the past year, another problem has emerged. Whether unemployed or working part-time or freelance, more people are pausing or simply stopping their contributions.
“The number of people who have strategically decided not to donate or participate in the system is very high,” said Dali Yang, a professor at the University of Chicago. “There has been a very significant increase in prices.”
Experts also warn that benefits will have to be cut if China does not change its retirement age, but that could be too generous in some cases. National average in 2022 Monthly payment amount The State Employment Pension was $500, but the Basic National Pension was only $28. However, contributions and benefits varied widely by city and state.
There are thousands of different pension schemes, each administered by a local authority. The amount retirees receive is related to local government finances and the size of certain pensioners. Some pensions may have fewer than her 30,000 members. one study.
In some wealthy areas, each retiree is supported by as many as eight workers. But in poorer areas, there are about two workers for every retiree.
As pressure mounts, concerned Chinese officials and experts are urging young people to save and join private pension plans.
A famous professor encouraged young people to forego their daily coffee and put the money into a foundation. Some people warn young people that the basic pension alone will not be enough to survive in retirement.
For some young people, the urgent call is backfiring.
“Their complaints are counterproductive. We are frustrated by the increasing number of complaints,” said Lumiere Chen, 27, a private insurance agent in Beijing who has clients around 35 years old.
It’s not easy to convince even a slightly older person.
Leon Li, 37, a driver for Didi Chuxing, China’s equivalent of Uber, said: “To be honest, I don’t think I’ll be able to live on my retirement savings and cover my future retirement with them.” . After Mr. Lee worked for a market research company for more than 10 years, he lost his job last year. He received a pension from his company and will continue to pay it for the next two years to meet the minimum 15-year threshold for receiving benefits after retirement.
In contrast, Caesar Li, 27, is not enrolled in the basic public pension system. The reason is that pensions are too high. Ms Lee, a freelancer, said she had noticed more seniors claiming pensions and fewer young professionals paying into the scheme. He echoed the concerns of other young people that retired parents and grandparents sometimes earn twice as much as their working families.
Caesar Lee said he and his friends sometimes talk about the future and joke about who will take care of them when they get older. “We may end up alone and die at home,” he added.
As the number of young people decreases and the number of older people increases, the gap between workers and retirees will become even wider.
“We’ll just have to leave it to fate,” Lee said. “I can’t control it.”
Li Yu Contributed to research.