Experts recommend adjusting the retirement age as soon as possible: China currently has the youngest retirement age

In 2022, the Chinese population decreased by 850,000, the first negative growth in 61 years. In addition to the declining birth rate, China is also one of the fastest-aging countries in the world. According to the data, by the end of 2022, there were 280.04 million elderly people aged 60 and above in the country, accounting for 19.8% of the total population, of which 209.78 million were aged 65 and above, accounting for 14.9% of the total population. Recently, Zheng Bingwen, director of the World Social Security Research Center of the Chinese Academy of Social Sciences, accepted a series of interviews with Baidu Finance's "Ten Questions on the Population" column, he said that at present, China's retirement age is the youngest, and the average retirement age for men and women is 55 years old, 12 years earlier than the retirement age in developed countries, and should be adjusted as soon as possible. In fact, China should adjust this parameter first, but it faces two problems, one is to delay retirement under the pressure of employment and economic downturn, and the room for maneuver is getting smaller and smaller. In addition, delayed retirement is subject to certain physiological limits, and Japan is discussing retirement at the age of 70. Why discuss it? Because there is also the problem of physiological limits, the maximum retirement age is now 67 years old, and no country has ever retired at 70 years old.

In response to pension pressure, several countries such as the United States and Canada are transitioning from a pay-as-you-go system to a partial accumulation system. He believes that this is the best model to deal with aging at present, and the essence of this model is to use capital dividends, which can make up for the demographic dividend that has disappeared. In addition, Zheng Bingwen stressed that to activate the personal pension system, there must first be an active capital market, and if the stock market is not good, it will be difficult to awaken everyone's enthusiasm.

1. At present, China implements a social pooling system, and the pension insurance fees paid by incumbents are mainly used to pay the pensions of those who have now retired. This system now faces serious challenges, as China's elderly population aged 65 and over accounts for 14.9% of the total population, and the working-age population (aged 16-59) accounts for 886 million, accounting for 62.4% of the total population. In addition to the current discussion of gradual delayed retirement, what other measures can the social security pension system take to cope with the challenge of aging and declining birthrate?

Zheng Bingwen: Pay-as-you-go means that the state collects the expenses and spends them immediately, which is the most popular model in the first pillar, and now mainstream countries and developed countries are adopting the pay-as-you-go system. China adopts a partial accumulation system, with personal accounts, but the actual personal accounts are empty. So, in general, the financing model is still pay-as-you-go. This system is essentially similar to the pay-as-you-go model in developed countries, and poses the same threat to all countries. Ageing leads to fewer contributors and more pensioners, a problem that all developed countries face because of lower birth rates, higher ageing populations, and longer life expectancy for retirees. Countries with less high economies, such as Africa, do not have this problem, their workforce is still young, and there is no problem with an aging population. Therefore, the more developed countries are, the less likely they are to have children, and the more their populations are aging, which is a law.

China is also experiencing an aging population, a challenge that is even more severe than that of developed countries, because we are "growing old before we get rich". Some of the countermeasures just mentioned are generally used by developed countries, such as reducing the replacement rate, increasing the contribution rate, raising or extending the retirement age, and some countries are already retiring at the age of 67, but it is still not possible, and Japan is discussing whether it is okay to retire at the age of 70. At present, China has the youngest retirement age, with an average retirement age of 55 years for men and women, 12 years earlier than the retirement age in developed countries. Originally, China should have adjusted this parameter first, but when it came to adjusting it, it faced two problems: First, how much room for political maneuver could there be? In the face of great pressure on employment and great pressure on the economic downturn, the room for maneuver is actually getting smaller and smaller. Another constraint is that delayed retirement is limited by a certain physiological limit, Japan is discussing retirement at the age of 70, why should it be discussed? Because it is also facing the problem of physiological limits, the highest retirement age is now 67 years old, and no country has ever retired at the age of 70. The physiological limit of this retirement is still relatively large for China's retirement age of 55.

In developed countries, many have already implemented retirement at age 67, but are still under pressure. So, they're exploring a new model that's already been implemented in four or five countries, and it's working well, which is the transition from a pay-as-you-go system to a fractional accumulation system. The so-called partial accumulation system, which is a pay-as-you-go system with defined benefits, is a new model, which was originally born in the United States in 1990 and has been implemented with good results until now. Canada felt that this model was very good, and in 1997 it carried out reforms in this direction, and the direction of reform was more radical than that of the United States, and carried out market-oriented investment operations. The United States still maintains the traditional investment model of Treasury bonds, while Canada is an aggressive market-oriented model, with global asset allocation and alternative investments, so the yield is currently very good, and Canada's practice has promoted Japan and South Korea to adopt this model. I think this is the best model to deal with aging at present, and the essence of this model is to use capital dividends to fill the demographic dividend that has disappeared. The pay-as-you-go model relies on the demographic dividend, but if the proportion of young people is small, the proportion of the elderly is large, and the demographic dividend is gone, this model will be useless. African countries do not have this problem at present, in the past, three people raised one, now four people raise one, and the more children the better. For advanced economies and countries with aging populations, the traditional model is not working, so the new model has attracted a lot of attention.

This model is still relatively good for China, and it is suitable for China's national conditions, because the external conditions for China to establish an asset-based system to replace a liability-based system are getting better and better. This external condition is that the biological rate of return is getting lower and lower, and the biological rate of return is the sum of the population growth rate and the wage growth rate, and this condition is becoming more and more available. In the past, the birth rate was high, but now the birth rate is low, and the growth rate of the average social wage is also low, and the two together are even lower, making the biological rate of return lower and lower. After the biological rate of return is reduced, it is a good time to establish an asset-based system, the rate of return on assets, the potential rate of return and the rate of return on biology will be very close, consistent, even higher than the rate of return on biology, the establishment of an asset-based system is better than the previous debt-based system, and the advantage of capital dividend will be more obvious than the previous advantage of demographic dividend. In the past, there were no conditions to give full play to the capital dividend, because wages have grown rapidly, and the population growth rate has been very high, so if you want to build an asset-based system, the rate of return is constrained, and if you can't reach or even exceed the biological rate of return, this system cannot be established, and investors have no enthusiasm, and even if it is established, it will eventually be returned, or it will be nothing. Now, China's time is gradually coming. Second, the decision-makers seized the best historic opportunity and issued a national medium- and long-term plan to actively respond to aging in 2019, proposing five major measures. The first major measure is to consolidate the wealth reserve of the society in response to the aging of the population, which mainly refers to the wealth in the form of finance, rather than other physical forms of wealth such as buildings or food and clothing, because physical wealth cannot be stored for a long time, let alone intergenerational storage conversion. Therefore, the first measure proposed by the central government is to consolidate the social wealth reserves, and this kind of policy support and guidance is also a kind of dividend, which can be converted into the system dividend just mentioned, that is, from the demographic dividend system to the capital dividend system, and from the debt-based system to the asset-based system. These changes are clearly stated in the document issued in 2019, which is a programmatic document and guidelines for China's response to population aging for a long time to come, and also sets quantitative goals: to complete the establishment of the system in 2022 and to reach the level of a moderately developed country by 2035.

In 2023, the National Social Science Fund approved a project led by me, and the name of the project is "Research on the Development Goals and Realistic Paths of the Multi-level and Multi-pillar Pension Insurance System in the Mainland in 2035". In the past few years, we should concentrate on completing this topic, and the guiding ideology of this research is the country's medium- and long-term plan to actively respond to the aging of the population.

2. In the previous era of China's rapid economic growth, many assets had a good rate of return, and now they are entering the era of medium and low speed, the rate of return on investment may not be as high as before, and many projects may not necessarily make money.

Zheng Bingwen: The investment of social insurance funds and pension funds is mainly in the securities market, and of course the basic assets and fundamentals of the securities market are in the primary market, and in the macro and fundamental aspects of economic development. However, as far as the secondary securities market is concerned, first of all, the market should be better, and the past two years have indeed not been very good, due to the international background factors and China's own factors.

The top leadership has seen this problem and feels that it has indeed affected the lives of ordinary people, and that the people's asset income is facing a threat. Therefore, at the meeting of the Political Bureau of the Central Committee in July 2023, it was proposed to activate the capital market and boost investor confidence, and this issue was raised again and again in the second half of the year, and the relevant departments also issued many policies. The concept of pension finance put forward by the Central Financial Work Conference is aimed at how to improve the return on investment. We need to make an asset-based system, the larger the scale of assets, the worse the rate of return, the greater the welfare loss; if the scale of assets is smaller, the welfare loss will be smaller, if there are no assets, there will be no loss, this is the paradox of the two.

Therefore, on the one hand, it is necessary to expand the social pension reserves in response to the aging of the population, and at the same time, it is also necessary to do a good job in the basic system of the capital market, so that the capital market can become the blood of the national economy in the economy, and become an important support system and investment place in the pension system. Otherwise, the third pillar will be transformed from a very good complementary system into a system of laziness in name only. If the capital market is not active and falls all day long, everyone will not pay money, and they will lose money when they pay for investment, and eventually they may abandon this system. In the first half of 2023, 40 million people will participate in personal pensions, and it is estimated that it will be no problem to increase at least another 10 million or 20 million in the annual data. Moreover, this is only 36 pilot cities, and if it is rolled out across the country, it is estimated that there will be 80 or 90 million a year. After so many people participate, they will find that their investment is losing money, and they will face it negatively, and the system will be in a very inefficient state of laziness. Therefore, to activate the personal pension system, first of all, there must be an active capital market, to wake up these people to participate, to wake up the participants to pay, but if the capital market is not good, it is difficult to wake up, there is no enthusiasm.

3. The superposition of population aging with declining birthrate, aging, empty nesting, and disability has brought greater challenges to the high-quality development of Chinese-style modernization. Around 2027, the mainland's old-age dependency ratio will exceed the child-dependent ratio, and China will evolve from a "child-friendly" society to a "old-aged" society.

Zheng Bingwen: At present, the balance of pension funds in China is only 12%-13% of GDP, which is lower than the world average (the world average is 60%). Again, the biggest threat to aging and empty-nesting is the financial sustainability of the system. The so-called financial sustainability is how many years the actuarial system can support from a purely technical point of view, and we do not have such calculations and predictions now.

If you make a prediction, the data will definitely be worse than that of developed countries, because their pension fund reserves are very high, and the retirement age is very high, and we are the opposite, people are "two highs", we are "two low", how to compare? It is difficult to raise it, and it has been mentioned for many years to raise the retirement age, and we are 12 years lower than the international level, and it is impossible to put it in place at one time. However, the effect of raising the retirement age is immediate, which can reduce the retired population of the current age group, and at the same time increase the contributory population of this age group. Another point is that the pension wealth reserve is not high enough, which is also difficult to improve, because it is closely connected with the capital market. The situation of personal pension landing for one year tells us that the inactive capital market has a counterproductive effect on it. The personal pension system itself is well designed, but there must be a supporting system, and the capital market is an important supporting system. The "first high" delayed retirement requires the creation of an atmosphere in the whole society, as well as the international climate, and the failure to raise the retirement age in France in 2022 has also brought us some adverse effects. The country is also facing this environment, such as the situation of the capital market is not ideal, personal pension is only a branch of the environment, this branch is facing such a large environmental pressure, is not conducive to the implementation of the system, will encounter inertia. How to deal with this kind of inertia, the first high, the second highest are facing this problem.

4. On the first anniversary of the implementation of the personal pension system, the latest data shows that the number of accounts opened in half a year exceeds 40 million people, and the total payment amount is 20 billion yuan, of which only more than 9 million people have completed the fund storage, and the actual number of contributors is only 31% of the number of participants, and the per capita storage is only 2,022 yuan, which is significantly different from the upper limit of 12,000 yuan. How to look at the data of the past year, what are the difficulties in the construction of the third pillar of old-age security, and what are the experiences worth learning from in the world?

Zheng Bingwen: In the past two years, I have been studying the performance of the third pillar abroad. It just so happens that the performance of the international capital market in the past two years has not been good and has fluctuated greatly, so on the whole, the third pillar yield of major international countries is not good, and even the United States is very poor. The U.S. personal account was $13.9 trillion in 2021 and fell to $11.5 trillion in 2022, a decrease of $2.4 trillion, which is a very bad performance.

The international market has also had some impact on China, and we have launched a personal pension system, but the domestic market is not very good, resulting in the originally active participants becoming lazy, so the data is not ideal. On the whole, the number of insured people and the number of people who opened accounts are okay, but only 9 million people have completed the deposit of funds after opening an account, which is only 22% compared to 40 million account openers, that is, only more than one-fifth of them have paid money. Moreover, the people who paid the money were all symbolic, and the money was very small, or they simply put the money in the account and did not invest, and all of it was precipitated into a demand deposit in the bank;

Generally speaking, from a global point of view, the yield of the third pillar is not as good as that of the second pillar, and the yield of the third pillar in China is not expected to be better than that of the second pillar. The data for the whole of 2023 has not yet come out, and it may be confirmed when it comes out. Therefore, from the perspective of experience and lessons, the return on investment is the first problem, and it is a good incentive to do it well, and it is a great negative incentive to do it badly, resulting in low enthusiasm.

Source: Baidu Finance