Cross-Border Catch-Up: China’s Retirement System

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Lina Fernandez: Welcome to the Cross-Border Catch-Up, the podcast for all employers who want to say in the know about cutting-edge employment issues worldwide.

I am Lina Fernandez, and I’m here with my colleague Skye Hao. We’re cross-border attorneys here at Ogletree Deakins, and today we’re going to discuss the retirement system in China and the new reform. Today’s topic is interesting, as I heard that China has a mandatory retirement age. Skye, can you give us some background on that?

Skye Hao: Yes, of course, Lina. So the mandatory retirement age current legislation for male employees is 60 years old and 55 years old for female employees with managerial position and 50 years old for ordinary female employees. So, there are several exceptions for the employees to apply for early retirement. For those engaged in underground, high altitude, high temperature, particularly high risk physical labor, or in other words, detrimental to an employee’s health, the retirement age is 55 for men and 45 for women, as long as they have 10 years of continuous service.

In case of retirement due to complete incapacitation from illness or non-work-related disability, male employees can retire at 50 and female employees can retire at 45. The employee’s total incapacity to work must be certified by a hospital and confirmed by the labor appraisal committee.

Lina Fernandez: So, Skye, once the employees reach the ages that you just mentioned, are they automatically retired?

Skye Hao: That’s a great question, Lina. So, one common misconception about the retirement system in China is the interpretation of the term “mandatory.” The employment relationship between the employer and employee who reach the retirement age does not automatically cease. Instead, employers need to initiate a conversation with the employee and go through the retirement process, and upon completion of this process, the employee will receive a retirement certificate and then the employer will issue a termination notice to the employee, and that’s a time for which employment relationship ends. And by that time, if the employee wishes to continue working for the employer after they terminate the employment relationship, they can also sign a consultant agreement after they receive that notice.

And this new relationship will not be governed by the China labor law for sure, and because there is no employment benefits and there’s no protections, instead it will be governed by the China civil law.

Lina Fernandez: Oh, that’s so interesting. And I think you mentioned that the employee has to go through a retirement process. Can you walk us through that retirement process please?

Skye Hao: Yes, of course. In China, the retirement process for employees who reach the mandatory retirement age is governed by the national regulation, particularly the social insurance laws People’s Republic of China, and it’s also mainly governed by the company’s internal policies, and here is an overview of the key steps economy for the retirement process.

So, the first step will be the notification and preparation. The employer, you really provide notice to the employee when they’re approaching the mandatory retirement age. Because there’s no required notification period under the law, companies have their general discretion to decide when to notify the employee. In practice, companies will provide notice at the beginning of a cabinet year or at least one month before the employee’s birthday on the same year of when they reach the retirement age. Then the employer will assist the employee in preparation of the necessary document and forms required to apply for the pension benefits.

The second step will be the pension application. The retiring employee or their employer will need to submit a pension application to the local Social Security Bureau, and it depends on which the province and the city and how the local Social Security Bureau handle this, so the required document will be different, and the process will be a different too. But the required documents typically include the employee’s ID, their employment history, the payment records for the social insurance contribution, and some other personal information.

Then the third step will be approval and disbursement. So, once the application is approved by the local Social Security Bureau, they will issue a retirement certificate to the employee. Then the employee will start to receive their pension benefits monthly from the social insurance fund. The employment relationship between the employee and employer generally ends upon reaching the mandatory retirement age, and the employee received the termination notice unless the employee is rehired under the specific situation under the company’s retirement policy, the relationship will be end by that time.

Then the employees file by the company will be archived, and the record will be updated to reflect the retirement status. But in some cases, particularly with high level professionals or those with specialized skills, there may be provisions in the company’s policy to extend the employment beyond the mandatory retirement age, but it’s really typical to negotiate between the company and the employee on a case-by-case basis.

Lina Fernandez: So interesting. Well, thank you, Skye. Those steps are very clear. I’ve heard there may be a reform, or there has been a reform recently regarding retirement age in China. Does this reform affects what we have been discussing?

Skye Hao: Yeah, it’s due to rapidly increasing of life expectancy. The current retirement age seems out of date. So, last month, China’s government adopted the resolution which specifically point out that the country’s statutory retirement age will be gradually rise over the next five years, although the final retirement age has not been specified. But an early report on the 2022 suggests that it’s likely to extend retirement age to 65 years old for female and male employees. With that said, it’s still unclear when and how the new reform going to impact on the current workforce yet or the mandatory retirement age yet. So, we will expect to see probational legislations on the topic in the upcoming years.

Lina Fernandez: Understood. Well, Skye, thank you so much for talking to us about this topic, and thank you everyone for joining us for today’s Cross-Border Catch-Up for us to stay in the know about cutting edge employment issues worldwide.

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