Early Retirement in China and the Social Problem of the Retired - Essay Example

Early Retirement in China and the Social Problem of the Retired Introduction Compared with other countries, the regulated retirement age is quite low in China. This is because China is still a young nation that is preoccupied with socio-economic and political challenges such as providing education to the young, building strong economic foundations, and creating job opportunities for the growing population. For this reason, China’s age wave is considered to be among those that are so daunting not only due to the magnitude with which it is fast approaching, but also due to the fact that it comes at a time when the country is in the midst of modernization. Unlike other developed countries that have put in place mechanisms to cater for the welfare of the aged, China’s aging pattern is taking place much earlier than anticipated and in the midst of social and economic development (Yuan 2007). Perhaps this is the backbone of social pension service problem in China. In fact, low legal retirement age regulations and actual premature retirement are catalysts for the burden on society and families in supporting those who have retired. However, individuals can decide on what age to retire, based on their preferences between work and leisure and between their own consumption and their children’s inheritance. Given the increasing supporting ratio and pension fund shortage in China, universal early retirement can further aggravate the situation. Understanding China’s social pension service Pensions are a particularly important part of the social services provided by the Chinese government where reform can play a major role in rebalancing China’s economy. Moreover, the need to iron out the problems bedeviling the social pension service system in China and establish a sound pension system is especially pressing because of the acceleration in the aging of the population. For the past two decades, a lot of efforts have been put into the process of reforming China’s social pension service. The aim of this reform process is to put in place a social pension service for the entire urban and rural population. A lack of a comprehensive social pension service is in itself a social problem of the retired and aging population (Woo 2012). The pension system was set up after the founding of the socialist economy, whereby Chinese nationals and/or citizens were guaranteed employment in state owned enterprises or other state institutions with all of the attendant social benefits. The benefits were provided directly by enterprises, and the system was financed by enterprise contributions topped up by fiscal allocations. The initiation of reforms saw a hardening of state-owned enterprises budget constraints, a reduction in the ability to state-owned enterprises to provide promised benefits, and a progressive reduction in the social obligations of state-owned enterprises. The modest security provided in the first place by the social pension service is being tested all the way, and the very functions of the welfare state are being put into question. In order to alleviate the social problems of the retired, the reach of the Chinese welfare state is been expanded by traditional means such as expansion of social security and social assistance coverage, and involving multiple channels of service provision, social security provision, and the financing of benefits and services (Cai & Du 2009). Currently, China’s Social Security program is a three pillar pension system namely; employer supplementary retirement insurance, basic social security, and individual voluntary savings. Out of the three pillars, basic social security is the most suitable source of income for the old-aged and those who have opted for early retirement. Basic social security is often a combination of a defined pay-as-you-go base pension plan and a fully funded individual account. The employer supplementary retirement insurance which is still at its initial stages, is not fully developed due to the immature capital market (Dunaway & Arora 2007). In China, retirement benefits are determined by the number of years of contribution and the balance in the individual account. More often than not, the balance in the individual is usually converted into a 10-year annuity. If a retiree had not made contributions for a base period of 15 years, they are not entitled to a base pension. However, the balance in their individual accounts is made to them by lump-sum refunds at the time of the retirement. For the old aged; that is, those who retired before the reform and those who started to work before the reform and retired after, pension payments are attuned to be more or less similar to those of current workers. In order to avoid the social problem that are often affiliated to early retirement, the base pension is available only to employees whose contributions do not fall below the 15 year mark (Powell & Cook 2007). By doing this, it helps to discourage early retirement and the social problems that come with it. However, due to the relatively young retirement age and the use of early retirement, China’s old-age pension system has a higher system dependency ratio as compared to demographic old-age dependency ratio. With fewer workers contributing to the social security system and more retirees benefiting from the system, the contribution rate is unavoidably higher. Even as China aims to put in place mechanisms to discourage early retirement, China faces an excess labor situation, especially with ongoing reform of state-owned enterprises, and increasing retirement age at this time is not viewed as a viable option. The cost of early retirement China’s replacement rate is very high by international standards and its retirement age is low; hence; duration of retirement is also high compared to that of other countries. In the event that the government does not put in place mechanisms to discourage early retirement or if it does not increase the retirement age, the duration of retirement age is expected to jump to 25 years by 2050 going by the life expectancy projections. The increase in retirement age comes with a double impact. First, it will reduce the lifetime payouts while at the same time increasing the lifetime contributions. The issue of raising the retirement age is often a thorny issue in many developing countries, including China. It is imperative for China to be aware of this high opportunity cost. The social pension service problem will not end any time soon, since pensions are more expensive to pay and last for a much longer time period than unemployment benefits. The best choice for China as regards to early retirement depends on how pensioners value income in their early years of retirement relative to that in their later years, and whether they are more concerned about the absolute value of their purchasing power or their position relative to workers (Hunter et al 2008). China’s population is one that is characterized with rapid aging and this could be used as a basis for alleviating the social and economic stresses, which are themselves products of rapid modernization. In spite of the social pension service problem, China’s workforce is getting a share of the public pension scheme. However, China is one of the developing countries whose national savings can only be described as lofty, yet less than a third of its workers are in a position to put together adequate financial assets which they use to support themselves when they are in retirement. Majority of the workers often rely on the social pension service. This trend has seen the rise of social problems among retirees and unless the Chinese government puts in place mechanisms to eradicate this challenge, there will be an imminent retirement crisis of unimaginable proportions. China is not only developing rapidly, but its population is aging rapidly as well. For this reason, China will need to come up with a broad retirement system and whose benefits are affordable and adequate to all. When China stipulated the retirement age of enterprise workers, life expectancy was shorter than it is today. As life expectancy continues to rise, it often makes early retirement a luxury that China cannot afford. The idea of compulsory early retirement ought to be scrapped if the government is to raise more funds for social pension service. However, another school of thought is concerned that increasing the retirement age would reduce the number of job opportunities for new labor force entrants. On a short terms basis, there could be effects but in the long run there is no significant relation between retirement age and job opportunities. In other developed countries, increasing retirement age has not necessarily been a catalyst for unemployment. By increasing the retirement age, China would be establishing its pension system for the long run. These changes would reduce to a great extent the deficit in China’s pooled pension funds; hence; allowing the pooled funds to display a surplus as early as 2020. Together with the removal of early retirement rules, this legislation would create stronger incentives for workers to postpone retirement on their own initiative. This would increase their annual retirement benefits and reducing the state’s implicit pension liabilities. In the recent past, the Chinese government has put in place reform initiatives that have seen the social pension service move in the right direction. This is because China has improved its social pension service whereby it goes to cover more people beyond its original base of people working at the state owned enterprises. By doing this, the Country has its sight set on 2020 as the time when it will achieve universal suffrage. This is the case because the Chinese has put in place plans to establish a national pension reserve fund that would help to increase retirement savings even for those who opt for early retirement. In spite of these measures, this initiative is not the ideal solution for the problems bedeviling the social pension service because people in the rural areas are yet to benefit from the public pension coverage scheme. Since the coverage is not full portable, workers often find themselves stuck between a rock and a hard place such that they have to choose between retirement savings and job mobility. Summary Reforms in the public pension system in China for the past three decades have been following the guiding principles of reducing benefits, strengthening the links between contributions and benefits and expanding coverage. Nevertheless, as more people are covered by one type of social pension service or another, a number of problems and foreseeable challenges have come to the fore such as an aging population, disparity in benefits, high contribution rates, and low investment return on pension funds. For this reason a lot of studies have focused on the reform of China’s pension system. It is noteworthy that reforming the pension system relies on comprehensive social and economic reforms. The ability of an aging society to afford its elderly people is dependent on increase in productivity. The fundamental solution to solving the aging problem lies with the desire of the Chinese government to increase human capital investment as well as changing economic growth patterns. As for fairness and equality in pension benefits, China’s social pension service should be judged by whether it gives individuals a free choice. If the pension system is compulsory, there must be built-in incentives to raise returns on investment. In this case, using the capital markets to increase returns on pension funds is a necessity (Manion 2014). A sound capital market can yield higher returns on pension funds, but pension should not be put into the capital market for the sake of improving capital market. The intrinsic problems in China’s capital market will aggravate to a whole new level if pension funds are channeled into it. When it comes to pension funds, the main objective is to have sound governance for public pension funds; hence, pension fund investment should not be confined to domestic capital markets. China’s social care program for the elderly In order to alleviate the difficulties of the government in taking care of the aged, the social pension service must be able to protect the old aged against poverty regardless of whether or not they have contributed to the public pension system. This can only be possible if the China was to concentrate its efforts on funded retirement savings. For this to be possible, China would be compelled to change the current pension system into a national system, which encompasses personal accounts that are genuinely funded (Chan et al 2008). In addition, the system ought to be regulated publicly, but at the same time it is invested and managed privately. This system will help to protect millions of retirees and old aged from living a life characterized by destituteness. By doing this, it would go a long way in averting widespread unrest marked by social and political connotations. Armed with a national social pension service, China will be in a position to cater for the needs of old aged and allowing its retirees to retire comfortably without necessarily having to overburden the current workforce. Along the way, this national pension will provide room for workers to own properties before and after retirement. The Chinese government had put in place rapid expansion programs of elderly care services. At the same time, the government scrapped state subsidies for the construction of old people’s homes and it initiated the earmarked grants for home help services and the loans provided for by the government for use in nursing homes. This move prompted local municipalities to expand home help services; thus, this created an avenue for the government to enlarge the capacity of nursing homes. It is at this point that the variety and volume of elderly care services swelled to unimaginable levels. Furthermore, industrialization absorbed more and more people to the labor market. As more families moved to the urban areas, it led to depopulation of rural areas; thus, this intensifies the need for care outside a family. For this reason, the government was required to step in and provide ways and means of looking after the aged people. Here, the government was required to equalize the regional differences of quality and quantity of public care services across local governments (Hamed, 2010). This is because rural areas were in dire need for elderly care, but limited resources to cater for these demands. Since then, the Chinese government has had difficulties in providing subsidies for home help services and the loans for the construction of nursing homes in rural areas. There was also a need for the work of home help services to be more professionalized in order to recruit younger women to those jobs. A comparison of China and the UK and the possible solutions China is among the countries that still face difficulties in providing financially and geographically accessible care to its older population or making such care readily available round the clock. In countries such as the UK where such problems are a thing of the past, the government’s support constitutes the single most important health resource for elderly people. The government has provided health practitioners to cater for the needs of the aged, and the vast majority of patients in elderly care come into contact with these doctors on a regular basis (Hieda 2012). This is not the case with China where problems afflicting the aged are increasing day by day. Even families are facing difficulties as well in taking care of the aged. This is because the young people often enjoy the money paid to them, but they often fall short of rendering their services. As a result, this elderly people are helpless and in such instances they are left on their own and with little or no help. More often than not, this kind of problem calls for social enterprises that would help to provide care to the elderly on behalf of the government. These enterprises would be suitable for age old people who have money by their pensions whereas the government would cater for those who are penniless. The aims and objectives of these enterprises would be to foster the welfare of the aged, especially the needy aged. Consequently, this would alleviate the difficulties faced by the Chinese government in taking care of the aged. In the UK, the economic status of the elderly is more varied than that of any other group. It contains some UK’s wealthiest individuals, as well as some of the poorest. Based on a report by the U.K. Bureau of the Census, it estimated that 11 per cent of the elderly had a pension scheme or below the poverty level while 27 per cent of those aged 65 and above were at risk of either being or becoming poor. While a significant number of the elderly in U.K. continue to live on the edge of poverty, significant strides have been made over the last several decades in reducing poverty rates for the elderly. In this regard, Social Security has contributed significantly to declining poverty rates for the elderly. These cohorts of people aged 65 and above have always had the opportunity to spend their working lives employed in jobs and occupations, which are covered by Social Security. While many of the elderly people remain poor, an increasing segment of the elderly population lives on more than a modest income, and some are affluent. China should borrow the model employed by the United Kingdom in taking care of the elderly whereby the government works in conjunction with social enterprises such as Continuing Care Retirement Communities. These enterprises are popular alternatives to nursing home care and they offer a full continuum of care for the elderly in a retirement community setting. As such, these social enterprises have become very popular in response to concerns about the high cost of long term care. The assumption of these enterprises is that with assistance from professionals and other service providers, family care givers will be able to continue their support for the elderly who are either ill or disabled on a long term basis. In addition, this position asserts that this not only helps the family and taxpayer to save on expenses, but also contributes to a higher quality of life for the elderly family member. It is a concern that taking care of the aged has always been a social problem for societies such as China. Therefore, the question is not whether the elderly should be taken care of, but who should take care of them. In this regard, human dignity ought to be the moral framework for guiding and constraining care, on the basis of both public and family care especially during old age. As a result, health care should not be treated solely as an instrumental good, for this is the responsibility which is to be shared by the government and family members. Family care is essential for supporting identity and sustaining belonging while the support provided by the government is often needed to improve functional capacities, and to improve material well-being. This helps to achieve a more rounded health care in old age. That being said, it is evident that caring for the elderly is a joint responsibility of the government, family and the individual even though the family is always the primary career. The family-based model, mediating between the government and the individual, has the promise of creating a more responsive social and economic long-term which integrates self-reliance, intergenerational reciprocity, and communal support. However, families in China have registered difficulties of the aged people and/or elderly due to lack of government support or a social pension service system. Adopting the UK model is of essence to China where the elderly care system is characterized by its universalism. The UK government declares that the objective of its elderly care programs is to allow aged people to be able to lead active lives and to influence the conduct of social affairs and their own everyday conditions, to be able to grow old in security and with their independence preserved, and to have access to good health care services. In order for the China to achieve such goals, the Chinese government is obliged to provide social services for all aged people who need help in their daily lives. The coverage and volume of UK’s public elderly care services is impressive in the international standard and China ought to follow suit. In China, health care programs for the aged are often financed by tax revenues albeit the government having difficulties in carrying out this obligation. It is these difficulties that have rural areas to register low housing units for nursing homes that often provide care for the aged. As opposed to China’s model, the provision of social care services in the UK is based on the assessment of care needs by local municipalities. Those nursing homes and/or supporting institutions for the old that are in need of assistance are required to liaise with their local municipality, and then an official assesses and determines the need. Generally, it is broader coverage and higher volume that characterize publicly funded elderly programs in the UK. As part of finding solutions to the difficulties facing the Chinese government in taking care of the aged people, there are a number of solutions that come into play. To being with, the Chinese government is required to play an active role in developing social care programs for the elderly. This is because industrialization has lured most people to urban areas and the aged have being left on their own. Hence, a lot of families are finding it difficult to provide the necessary care to the aged. This problem calls for the Chinese government to equalize regional differences of quality and quantity of public care services because rural areas unlike urban areas have more demands for elderly care, but fewer resources to meet these demands. In addition, the government is required to give subsidies for home help services to the regional governments and/or local municipalities and the loans for constructions of nursing homes. Besides, the work of supporting institutions for the old ought to be professionalized in order to recruit young people especially women to those job. The Chinese government should provide funds to regional governments to expand the number of beds in nursing homes. By providing these funds, it would help to solve the inequality of home help services and regional imbalances. Second, the government should expand funds for improving the housing conditions of the aged. As much as the elderly people continue to live the ordinary accommodations, there is need for the Chinese government to improve the housing conditions in order for those services to achieve their goals. The need for the aged to be well taken care of should be classified as a right and/or entitlement. To achieve this goal, the Chinese government needs to work in conjunction with the regional governments whereby these units are supposed to facilitate older people to stay in communities through home help services. In addition, the government should transform the elderly care services into more professional social work. With the need to make elderly care services more of a right, the government will be compelled to provide social care services for the aged. Hence, the aged will have the right to receive elderly care in their day-to-day existence. This would create a law that establishes the right to social care services and mandates the government to offer these services to the aged. By adopting a model similar to that in the UK, it will be the largest policy reform that will have considerable impacts on medical and social care for the aged in China. The main reason why the government has had difficulties in taking care of the old aged is due to the division of responsibilities health care by national governments and social care by regional governments which have become vague, and this has led to inefficiencies in elderly care programs. Hence, this led to a situation whereby more and more aged people continued to stay in their regular housings even though they have extensive care needs. Instituting reforms in the social care program is intended to solve such problems. Moreover, these reforms will reorganize the division of responsibilities between the national government and the regional governments. Under this reform, all responsibilities of social care services for the aged will be catered for by the national government under the management of the regional governments and/or local municipalities (Yin et al 2000). Conclusion To this end, reforms have successfully established a new framework that incorporates the insurance principle of risk sharing and has further eased the financial burden on enterprises by introducing worker contributions. In many respects, reforms of the social care program will go a long way towards addressing the weaknesses of the current system. Nevertheless, there are issues that are yet to be addressed if China is to achieve a social pension service system that is compatible with its future plans. First, it is whether the new pension system will be affordable today and in the next century when the aging population will peak. Second, it is the issue of pooling and its effect on labor market development. Third, it is to expand the coverage of the reformed old-aged social pension service. Future expansion of the social pension service will primarily bring in workers without accrued liabilities, and these workers will be entitled to make contributions for a period of time before they become vested and eligible for retirement. If addressed, all these issues would extend the financial viability of the new social pension service over a long period of time. References Cai, F & Du, Y, 2009. The China Population and Labor Yearbook, Volume 1: The Approaching Lewis Turning Point and Its Policy Implications, Danvers, MA: BRILL. Chan, CK, Ngok, KL & Phillips, 2008. Social Policy in China: Development and Well-being, Bristol: Policy Press. Chen, S & Powell, JL, 2012. Aging in China: Implications to Social Policy of a Changing Economic Scale, London: Springer Science & Business Media. Dunaway, S & Arora, VB, 2007. 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