Comments on

‘Retirement Patterns in China’

(Xiaoyao Lei, Yafeng Wang, Yaohui Zhao)

Evelyn Devadason

June 16, 2012

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Importance of the study

• Timely study given China’s rapid pace of aging and shortage of working adults.

• Understanding the factors that contribute to earlier retirement is important for public policy, such as to inform pension system reform and other key parameters (retirement age).

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Gist of the paper

• Retirement patterns in China are analyzed from retirement ages of the elderly or current retirees.

• A new and rich database: - China Health and Retirement Longitudinal Study,

CHARLS; - Counties stratified by rural/urban and GDP per capita; - Comprises 24 households with an elderly member (age

of 45 or older); - Sample size of 17,776 respondents from 10,281

households.

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Contd.

• The paper looked at possible explanations for the retirement patterns based on the following:

- mandatory retirement policy;

- social security;

- family wealth;

- child support (monetary transfers);

- expected post-retirement support.

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Contd.

• Key findings:

- Opposite retirement patterns between urban and rural folks; urban Chinese elderly retire much earlier than their rural counterparts.

- Main reasons for this are the benefits of social security and family wealth for the urban and the inadequate financial support from children for the rural elderly.

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Results are expected!• Residents in urban areas with formal wage employment retire at a

relatively young age and receive substantial support from pensions: - concurs with other studies, such as Giles et al. (2011); - retirement decision of urban dwellers in China is similar to that of

most developed countries.

• Seems that “ceaseless toil” (Davis-Friedmann, 1991) continues to remain an accurate depiction of the retirement pattern of the rural Chinese elderly.

• From a theoretical perspective, the role that pension income (or social security benefit) plays in the retirement decision is very much rooted in the literature on economic incentives to retire (or employee benefits) and early retirement.

6

Gaps in the empirical analysis

• Have spousal characteristics been taken into account as a control variable in the multivariate regression analysis? For example, an elderly married woman whose spouse has a defined benefit plan is more likely to retire early.

• What about industry characteristics, given the complex pension system in China?

• How economic variables interact in determining retirement? For example, health and income (social security) influence retirement.

7

Broader policy issues

• Raise mandatory retirement age?

• Provide financial incentives within the pension system to encourage retirement later in life? (or disincentives for early retirement and for the “normal” retirement age).

• Changes to the design in the pension system has to be done concurrent with increasing gradually the retirement age, to ensure a sustainable pension system as there are already signs of future pension deficits.

8

Contd.

• Informal social security arrangements are no longer sufficient for the rural elderly – the incentive structure of the NRPP needs to be upgraded.

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Taking the research forward…..

• It would be interesting to examine further the retirement behaviour of the rural Chinese elderly when the coverage of NRPP is extended to all counties.

• It may not be a total exit from employment (esp. in the case of elderly rural dwellers) but a reduction in work. (Pension participation may be faster than the retirement rate!).

• To identify if retirement has been complete or gradual by examining work intensity.

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