Pension Module and Its Application—Population Ageing and the Impacts of Retirement Age Extension on the Economy and Pension System in China

By introducing a pension module into the CHINAGEM model, this chapter explores the implications of raising the retirement age on economic growth and pension sustainability in China over the period of 2020 to 2100. In the baseline scenario, we assume that China maintains its current retirement age, China’s pension account will accumulate huge debts because of the rapid population ageing. The debts plus the interest obligation will put high pressure on the general government budget. In the policy scenario, we assume that China will gradually increase the retirement age from 58 to 65 years old starting from 2020. The simulation results show that increasing the retirement age is an effective policy in the short to medium term. It will boost China’s economic growth and reduce the pension fund deficit significantly. However, the effectiveness of the policy depends on how much the labour force participation rate for people aged 58 to 65 can be increased.