PRC Labor Law Newsletter：Retirement Age Delayed in China and its Impact on PRC Employers
On September 13, 2024, the Standing Committee of the PRC National People's Congress passed and published the Decision on Implementation of Gradual Delay of the Statutory Retirement Age (the "Decision"), which will be effective from January 1, 2025. This decision aims to utilize the increasing life expectancy of Chinese individuals and the aging population to make up the pension budget shortfalls.
?Along with the Decision, the Measures for Gradually Delaying the Statutory Retirement Age (the "Measures") were also published, which provided detailed guidance for implementing the Decision. This newsletter outlines the content of the Decision and Measures, supplements necessary background knowledge and interprets their impact on China's retirement system.
Legally speaking, retirement in China means "meeting the requirements to enjoy pension benefits from the social insurance and starting to receive those benefits on monthly basis." It includes two core requirements, i.e., reaching the statutory retirement age and meeting the minimum contribution period, which is currently 15 years.
The original statutory retirement age system in China was established as early as the 1950s, being 60 for all male employees and 55 or 50 for female employees, depending on whether the female employee is assuming a management position.
2. Delayed Retirement Age and Prolonged Contribution Period
The Decision and Measures maintain the existing three-part framework for statutory retirement age in China. After a 15-year transition period starting from January 2025, all male employees will retire at age of 63, while female employees will retire at 58 (if assuming a management role) or 55 (if not assuming a management role).? During the transition period, one’s statutory retirement age will be linked to his/her birth date, i.e., the later one was born, the later his/her statutory retirement age will be.
In addition to delaying the statutory retirement age, the Measures also increased the minimum contribution period required for entitlement of pension benefits from 15 to 20 years. This increase will occur gradually from 2030 to 2039, meaning that by January 1, 2039, all employees must have at least 20 years of pension insurance contribution to become qualified for the benefits.
领英推荐
3. Choice of Early Retirement and Further Delayed Retirement
Considering that some employees may not want to delay the retirement age according to the new rule, the Measures allow employees to choose early retirement, if they have met the required minimum contribution period, provided however, the period for early retirement shall be no longer than 3 years and the advanced retirement age shall not be lower than the original statutory age before the implementation of the Decision.? Such early retirement can be decided by the employee solely and no consent from the employer is required.
On the other side, the Measures also provided the possibility of further delayed retirement, which is subject to both employee’s and employer’s consents and the maximum period that can be delayed is also 3 years.
4. Impact on Employers
To sum up, the Measures outline three scenarios for employee’s retirement choice: (i) early retirement; (ii) retirement at the new statutory retirement age; and (iii) further delayed retirement.
However, the employees’ choice may differ from their employers’ interest. There are two possible conflicting scenarios:
(i)??????One is that an employer wants one employee to retire at the new statutory age or to further delay retirement because his/her contribution to the company is significant, but this employee refuses to do so. Under such circumstance, the employer needs to consider and offer satisfactory incentives to retain the employee;
(ii)?????The other scenario is that one employee wants to retire at the new statutory retirement age, while the employer prefers his/her early retirement because the employer does not want to pay three more years’ salary and would like to avoid the payment of severance fee. This situation is actually similar to the employer’s intended early termination of the employee’s labor contract, which requires negotiation with and consent from the employee, if without other legal ground for termination, such as serious disciplinary violations.
Considering the above, employers in China are suggested to conduct a full assessment of each employee's possible retirement age range. For those employees who will reach the updated statutory retirement age within 5 years, employers shall proactively obtain their retirement intentions in order to better manage the labor relations and smoothen the upcoming transition work.