Abstract
In order to cope with population aging and emerging labor shortages, the Chinese government may soon introduce a policy to address this problem by raising the normal retirement age. However, the effects of planning for delayed retirement on the welfare of the elderly remain unknown. From an intergenerational support perspective, we develop a dynamic optimization model that can simulate changes in the welfare of the elderly over the years under different delayed retirement scenarios. Simulation results show that delaying retirement will produce a detrimental effect on old-age welfare. We further analyze strategies to mitigate this adverse effect and improve people’s welfare. First, the delayed retirement policy should raise the pension replacement rate, which could transfer part of the social welfare improvements from delayed retirement to the elderly through the transfer payment mechanism. Second, when adopting a defined-contribution pension system, the delayed retirement could increase the welfare of the elderly and the social well-being. Implications for future research and public policies concerning welfare effects of delayed retirement are discussed.
Highlights
As a remarkable decline in fertility rates, population aging has become an issue of major concern to many countries of the world
Of all the cases (BI, gradually delayed retirement (GDR), and immediately delayed retirement (IDR)), the intergenerational support for the elderly appear to an upward trend, suggesting that the welfare of older people will be improved in the future
The interesting question is: Does the delayed retirement policy increase the welfare of the elderly? In a sense, this determines the effectiveness of policy implementation and related supporting arrangements
Summary
As a remarkable decline in fertility rates, population aging has become an issue of major concern to many countries of the world This is evident in Europe, where in less than 50 years older adults will have doubled in relation to people in working age between 15 and 64 years old, and are expected to reach 30% of population (United Nations, 2013). The shifts of population structure in China reflect a demographic transition from a population pattern previously characterized by demographic dividend to aging population, raising considerable concerns about the pension arrangement and its sustainability (Shen et al, 2020) Facing this challenge, the Ministry of Human Resources and Social Security of PRC (MOHRSS) has been working to introduce a delayed retirement scheme for a number of years to tackle the payment pressure on pension system.
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