Monika Queisser

Editor Note: 

China needs to alleviate possible demographic catastrophe with an aging population. Recent changes in the family planning policy to allow more couples to have a second child are being coupled with efforts to raise China's retirement age, currently just 55 for women and 60 for men. What models have other countries used? How can China reform its policies? Global Times (GT) Paris-based special correspondent Shi Xiaofan talked to Monika Queisser (Queisser), head of social policy at the Organisation for Economic Co-operation and Development (OECD), on these issues.

GT: OECD's "Pensions at a Glance 2013" calls for governments to double their efforts to encourage people to work longer, saying that most OECD countries will have a retirement age for both men and women of at least 67 by 2050. Why is this such a long process? 

Queisser: In general, most countries try to avoid very abrupt increases of the retirement age, as it might be difficult for older workers to adjust their retirement planning if the increase happens too quickly. Some countries also make the increase of future pension ages automatic by linking the age at which people can retire to the increase in life expectancy.

So far, there is only one country, the Czech Republic, that has decided to have an open-ended increase of the pension age. From 2044 the pension age will be increased by two months every year, without any limit. 

GT: If OECD countries had not raised the retirement age, what problems would they have had for their pension systems?

Queisser: At the outset, when pension systems were first created, pension ages were high and life expectancy in retirement was rather short. Now workers are retiring earlier, retirees are living longer and healthier lives and at the same time, fertility rates have fallen in many countries. This leads to imbalances in pension financing.

As fewer young people have to pay for more and more pensioners, workers' contributions have to rise or taxes have to be increased, placing a large burden on younger generations. High contributions for pensions can also make labor very expensive, which in turn can harm younger people's chances to find employment.

GT: According to the OECD report, raising the retirement age is one of the most politically contested measures. In France almost every effort to raise retirement age has met mass strong protests and demonstrations. There are similar sentiments in China. Why are the reforms so contested?

Queisser: Pension systems are quite complex and changes to benefits are not always easily understood. Raising the pension age, however, is a measure that everyone understands. Many people feel that by paying pension contributions during their working lives they have earned a comfortable retirement during which they can enjoy life, travel, spend time with their families and also pursue other activities.

When the conditions for retirement are changed, most people feel that a benefit is taken away and this understandably causes unhappiness.

But the attitude differs. In some countries, like the Nordic countries or Germany, higher pension ages are now much more accepted by societies as there is also a worry about placing too large a burden on younger people.

Research has also shown that people who retire are initially very happy with their lives but over time they might not enjoy retirement as much as they thought.

The only way to keep low retirement ages would be to either cut benefits or increase social security contributions and taxes to pay for continuously increasing periods in retirement. Many countries have already done major pension reforms which led to lower benefits and cutting pensions further might increase the risk of old-age poverty.

GT: What do you think of China's efforts at pension reform? How can the country gradually raise the retirement age? 

Queisser:I visited China in April 2013 and I was very impressed with the on-going discussions on pension reform and aging policies more broadly.

The recent decision by the Third Plenary Session of the 18th CPC Central Committee confirms that policymakers are actively addressing the challenges of population aging in China. A gradual increase of the pension age should be part of a carefully balanced reform package to achieve a fair and sustainable social security system which protects the incomes of older people and prevents a too large burden on younger generations.  

There are different options for gradual increases of the retirement age. Some countries have simply decided on a uniform schedule, for example, by increasing the cut-off point by a few months each year. Some countries have excluded workers close to retirement and only apply the higher ages to people who are at least a few years away from retirement.

If China maintains its strong economic growth, pension financing will certainly be easier than in many other countries. But pension reform will be necessary even in such a scenario. China will be experiencing a rapidly aging population which will also require other ageing-related expenditures, such as health and long-term care.

GT: How can we take into account social differences in calculating retirement? 

Queisser: Many OECD countries have different pension systems for different groups of workers, such as those working in mining, railroads or utility companies, but also for different groups of civil servants and public sector workers, such as military, police, or government employees.

Historically, the retirement ages for some groups have been lower because the jobs used to be more physically demanding and as a result, life expectancy for these workers was also lower.

However, with increases in longevity, higher living standards in general, better working conditions due to better and safer workplace environments and modern technology, the situation is different today for most workers. The right way to go is to invest in workers' health and safety rather than have them retire early.

For workers who do have health problems, it is best to use disability benefit systems following medical assessments of workers' health.

For government institutions and the state, implementing a higher retirement age is easier since the decisions to employ workers longer are under the responsibility of the government while in the private sector companies will decide. Many countries in the OECD have separate pension schemes for public sector workers which were often not adequately funded. These are now often lacking funds.

China can learn from this experience by carefully balancing the pension promises for public sector employees with the funding requirements.

GT: Will raising the retirement age mean less jobs for young people? 

Queisser: The fear that longer working lives will mean fewer jobs for younger people is common in many countries. However, there is no simple equation. The profiles and job experiences of the two groups are different and countries create jobs for both older and younger workers.

France provides a powerful example. There, people stop working at relatively young ages and yet youth unemployment has been high for many years.