China’s 2024 retirement age reform marks an important milestone in pension policy, but it does not by itself resolve the economic and fiscal pressures created by rapid population ageing. Our column quantifies the impact of ageing and the retirement-age reform and argues that a broader package – combining longer working lives, better rural protection, and more automatic adjustment to longevity – would better balance sustainability and adequacy.

In September 2024, China’s legislature approved an increase in the statutory retirement age starting January 2025, to be phased in over 15 years (Reuters 2024). The reform comes at a critical moment. China is still in the midst of its development transition, with a long-term vision of reaching ‘medium-level developed country’ status in per-capita terms by 2035 (Reuters 2025).

Yet population ageing is becoming a powerful headwind to that agenda, given the drag it poses as is the case in advanced economies, including those in Europe (Cooley et al. 2024, Cooley and Henriksen 2018). However, compared to Europe, China will also face its unique policy questions, including from much faster expected population ageing and a significant urban–rural divide (Zilibotti et al. 2014).

Getting old before becoming rich: The demographic squeeze

China is undergoing a sharp demographic transition: rapid population ageing, a shrinking labour force, persistently low fertility, and continued urbanisation (Figure 1). Annual births have declined steeply, falling to 9.5 million in 2024 from roughly 18 million in 2016, while life expectancy continues to rise — meaning retirees draw benefits for longer. The old-age dependency ratio, estimated at 21.2% in 2024, is projected to double by 2041; for context, a similar doubling took about 19 years in Japan, compared with a projected 17 years in China.

At the same time, urbanisation has progressed rapidly, with the urban population share rising from 17.2% to 64.6% over the past five decades — reshaping who contributes to which pension scheme and increasing the importance of portability and system design.

These demographic forces interact with large urban-rural disparities. Policymakers face a dual task: protecting living standards for a rapidly growing elderly population — particularly in rural areas where benefits are lower — while keeping the pension system fiscally sustainable as the number of retirees rises rapidly.

From the ‘iron rice bowl’ to near-universal coverage

China’s pension system has undergone a profound transformation over the past several decades, evolving from a state-owned-enterprise-based model to a multi-tier system with near-universal coverage (Figure 2). China’s early pension system between 1949 and 1978 was largely based on the ‘iron rice bowl’ model, under which state-owned enterprises (SOEs) provided lifelong employment and benefits, including pensions, to their workers. The restructuring and partial privatisation of SOEs in the late 1970s and 1980s gradually dismantled this system. Subsequent pension reforms therefore sought to address the resulting coverage gap for private-sector workers, while also expanding coverage to rural residents and workers in more flexible forms of employment, such as gig workers. With the establishment of the Residents Pension Scheme (RPS) and the Urban Employees’ Pension Scheme (UEPS), near-universal pension coverage was achieved by 2012. A landmark 2015 reform integrated government employees into the urban system, aligning benefits and contribution rules across the public and private sectors. After the many waves of reforms, China’s pension architecture now consists of three pillars: a broad-based public system (Pillar 1), limited occupational pensions (Pillar 2), and emerging private savings schemes (Pillar 3). These reforms have markedly reduced absolute poverty rates among the elderly and extended pension coverage to over one billion people, representing a major milestone in China’s social protection system.