China’s New Retirement Age: Implications for Businesses

by Zhengwei Yang and Jiayi Ji

On 13 September 2024, China’s legislature passed the Decision on the Implementation of Gradual Delayed Retirement Age (“Decision”). This is the first time China has raised the retirement age since 1978.

In addition, the Measures for the Gradual Delayed Retirement Age (“Measures”) were issued to outline changes to the statutory retirement age, pension insurance, and voluntary retirement schemes. Both the Decision and the Measures will take effect on 1 January 2025.

1. What Changed?

a) The Statutory Retirement Age Will Rise Gradually over the Next 15 Years

Absent any other legislative acts, beginning from 1 January 2025, the statutory retirement age for male employees will rise by one month every four months, gradually reaching 63 years. This will also apply to female employees whose original statutory retirement age was 55 (generally applies to white-collar employees), with their retirement age gradually rising to 58 years. For female employees whose original statutory retirement age was 50 (generally applies to blue-collar workers), the retirement age will rise by one month every two months, gradually reaching 55 years.

This gradual adjustment ensures that individuals approaching retirement will experience only minor delays – typically a few months – rather than several years. For example, male employees born between January and April 1965 will see their retirement age increased to 60 years and 1 month, while for those born between May and August 1965, it will be at 60 years and 2 months.

b) The Minimum Pension Contribution Period Will Increase from 15 Years to 20 Years

Starting from 1 January 2030, the minimum contribution period for employees to qualify for a monthly pension payout will increase gradually from 15 years to 20 years, with an incremental six-month increase each year. Those retiring between 2025 and 2029 still face the current 15-year minimum contribution period.

Employees who reach the statutory retirement age before they have paid the minimum number of contributions can pay their contributions out of pocket either monthly or in a lump sum to qualify for a pension.

c) Voluntary Early Retirement is Now an Option

Employees who have met the minimum contribution period can voluntarily opt for early retirement, up to three years before the statutory retirement age. Voluntary early retirement was generally not an option before. However, their retirement age cannot fall below the current statutory ages of 50 or 55 years for women and 60 years for men. Employees may also choose to delay their retirement by up to three years, provided their employer agrees. Crucially, it is illegal to force employees into early or delayed retirement.

Special provisions for early retirement will apply to employees in specific industries, such as underground work (e.g., mining), high-temperature operations (e.g., welding), and other strenuous occupations, as stipulated by the state.

2. Key Takeaways for Employers

a) Termination Risks for Employers Could Rise

Under PRC law, labor contracts automatically terminate upon the employee’s retirement, and the employer is not obligated to pay severance upon such termination. The extension of the statutory retirement age means that employment contracts will now end later than previously anticipated. Employers no longer have a legitimate basis for terminating a contract at the former statutory retirement age, and any termination before the revised retirement age must be legally justified and follow the proper procedures.

PRC law does not include the concept of “employment at will” or allow for termination without cause. Employers can only lawfully terminate a labor contract on limited grounds, such as serious misconduct, redundancy, or incompetence. In such cases, due process must be strictly followed and under some cases, statutory severance must be paid. If a termination is deemed wrongful and without justifiable grounds, the employer may be ordered to pay double the statutory severance as a penalty and/or reinstate the employee.

b) Special Protections for Employees Will Gradually Decrease

On the other hand, the retirement age reform may reduce the number of employees who benefit from special protections under PRC labor law. Under the current laws, employees who have worked for 15 years or more at a company and are within five years of retirement enjoy substantial protection from termination. For example, employers can only terminate such employees on very limited grounds such as serious misconduct and cannot terminate them for such causes as incompetency or redundancy.

However, as the retirement age increases, this five-year protective period will be pushed further back. For example, if an employee is currently five years away from the retirement age of 60, but the new retirement age becomes 63, this employee will have three additional years before entering the protected window. Consequently, fewer employees will qualify for this heightened protection at any given time, as the eligibility period will shift with the delayed retirement age. In essence, the delay means fewer employees are within the immediate “protected” five-year range, thus providing employers with more leeway in their decision-making for those not yet in this category.

c) Labor Costs Might Increase

With the increased retirement age, employers are likely to face increased labor costs associated with extended employment, including statutory pension contributions, especially if employees do not choose early retirement.

In the future, the government may introduce certain supportive policies, such as tax incentives or a reduced employer contribution rate for pensions, to help offset these additional costs and encourage the hiring of older workers.

d) Looking Ahead

While the increase to the retirement age does bring challenges and costs for employers, it also offers them more room to manage long-term employees approaching retirement. Employers should establish internal records and monitor each employee’s statutory retirement age to evaluate potential cost increases and assess termination decisions and procedures accordingly.

The Measures and Decision have established the national standards at this stage, but as with other labor issues in China, implementation and practices may vary considerably by locality. We anticipate that local governments will issue more detailed guidelines for practical application and enforcement, likely after the effective date of 1 January 2025.