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

TFR in China: 1950 ‐ 2010 TFR fell sharply in early 1990s. It has long kept at very low level. 8 7 6 Socioeconomic change? 5 Sixth 4 Census 3 2 2.31 1.6 2.31 Policy on encouraging later 1.4 1 1.18 marriage and fewer children 0 Statistical report Academic research (low) Academic research (high) 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).

The Longevity Transition in Asia and Select Developing Countries Country Change in years lived past 65 as a percentage of 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.

100+ 1… 男 女 90 Economic Challenges 80 70 60 Japan “Ageing before wealthy” 50 1973 40 $3000 30 20 100+ 1… 男 10 女 90 0 80 0 200 400 600 8001,000 1,200 1,200 1,000 800 600 400 200 0 70 100+ 1… 女 60 男 90 90 China 80 80 50 2008 70 70 40 $3000 Korea 60 60 30 1987 50 50 20 40 $3000 40 10 30 30 0 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20 20 10 10 0 0 0 50 100 150 200 250 300 350 400 450 500 500 450 400 350 300 250 200 150 100 50 0

Age structure in China (2010) 100+ Female 90 ‐ 94 Male 80 ‐ 84 70 ‐ 74 60 ‐ 64 50 ‐ 54 40 ‐ 44 30 ‐ 34 20 ‐ 24 10 ‐ 14 0 ‐ 4 ‐ 15% ‐ 10% ‐ 5% 0% 5% 10% 15% 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 Labor income: 120 decreasing 100 28 16.3 19.5 19.8 42.7 25.3 38.5 80 51.8 62.2 60 40 20 0 60+ 65+ 75+ 60+ 65+ 75+ 60+ 65+ 75+ 1995 2002 2007 ‐ 20 Health (Public) Pension Benefits Other Public Transfers Private Transfers Asset Labor Income

Sources of financial support for the elderly (65+) in China Public transfers: 120 increasing 100 80 60 40 20 19.7 15.8 13.7 13.4 11.4 8.81 4.01 3.15 2.29 0 60+ 65+ 75+ 60+ 65+ 75+ 60+ 65+ 75+ 1995 2002 2007 ‐ 20 Health (Public) Pension Benefits Other Public Transfers Private Transfers Asset Labor Income

Sources of financial support for the elderly (65+) in China Private transfer: 120 decreasing 100 80 60 33.3 28.5 16.3 18.7 13.5 8.98 51.5 40 23.1 11.5 20 0 60+ 65+ 75+ 60+ 65+ 75+ 60+ 65+ 75+ 1995 2002 2007 ‐ 20 Health (Public) Pension Benefits Other Public Transfers Private Transfers Asset Labor Income

Sources of financial support for the elderly (65+) in China Lifecycle saving: 120 increasing 100 80 11.4 5.23 19.6 18.7 18.4 60 16.1 5.1 40 8.08 20 0 ‐ 9.66 60+ 65+ 75+ 60+ 65+ 75+ 60+ 65+ 75+ 1995 2002 2007 ‐ 20 Health (Public) Pension Benefits Other Public Transfers Private Transfers Asset Labor Income

Old ‐ Age Support Systems in China and Some Other Asian Economies Old-age (65+) Reallocation System, Selected Economies • Family support is still a main living source of 100 0 the elderly. Philippines 1999 25 75 • But China is moving Public transfers (%) quickly to a so called 50 modern market Thailand 1996 50 Asset-based economy with US 2000 (%) S. Korea 2000 Japan 2004 Increasing public 75 25 China 2007 transfers (with broader Taiwan 1998 China 2002 social welfare). Japan 1999 China 1995 100 0 100 75 50 25 0 Family Transfers (%) Source: data from NTA website

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 Changes in Lifecycle Deficit, 1995 and 2002, China Normalized to average labor income of 30 ‐ 49 year olds Increasing higher Shorter working life with Increasing support 0.6 education higher peak income for the elderly 0.4 0.2 0 0 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+ 20 23 60 ‐ 0.2 ‐ 0.4 40 � 37 years ‐ 0.6 ‐ 0.8 ‐ 1 1995 LCD 2002 LCD

Changes in the Lifecycle Deficit in China Changes in Lifecycle Deficit, 1995 ‐ 2007, China Normalized to average labor income of 30 ‐ 49 year olds Shorter working life with Increasing support 0.6 higher peak income for the elderly 0.4 0.2 58 21 0 0 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+ 20 23 60 ‐ 0.2 ‐ 0.4 40 � 37 years ‐ 0.6 ‐ 0.8 ‐ 1 1995 LCD 2002 LCD 2007 LCD

Changes in the Lifecycle Deficit in China Changes in Lifecycle Deficit, 1995 ‐ 2009, China Normalized to average labor income of 30 ‐ 49 year olds Increasing higher Shorter working life with Increasing support 0.8 education higher peak income for the elderly 0.6 0.4 0.2 56 21 0 0 2 4 6 8 10 12 14 16 20 18 20 22 24 23 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90+ ‐ 0.2 ‐ 0.4 40 � 35 years ‐ 0.6 ‐ 0.8 ‐ 1 ‐ 1.2 1995 LCD 2002 LCD 2007 LCD 2009LCD

Working Life Changing in China and Some Asian Countries Cutting Ages Working Cutting Ages Working Lifecycle Deficit Life 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 The working life was getting shorter as in some other Asian NTA countries, but China’s was still longer than in these other countries. Lifecycle Cutting ages Working Lifecycle Cutting ages Working Deficit Life Deficit 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 Source: NTA dataset