Reforming China’s Pension Scheme for Urban Workers: Liquidity Gap and Policies’ Effects Forecasting

Abstract

This study forecasts the liquidity gap in China's pension scheme for urban workers in the context of an ageing population and the possible effects of recent governmental policies by constructing a basic pension model, including "old people", "middle people" and "new people" and a simulation method. We find, firstly, that China's liquidity gap of pension will reach its peak of approximately 13.11 trillion yuan in 2038. Subsequently, this gap will gradually decrease with growth in the mortality rate. Secondly, reasonable intervals for the replacement and contribution rates should be set at [0.417, 0.604] and [0.189, 0.262], respectively, to sustain China's pension system. Thirdly, compared to increasing fiscal subsidies, an income doubling plan, raising the contribution rate, lowering the replacement rate and delaying the retirement age can significantly reduce the liquidity gap, although the policy costs are relatively high. A policy permitting families to have two children will increase the rate of reduction of the liquidity gap, but it cannot effectively narrow the gap at the peak moment.

Assessing the Financial Sustainability of the Pension Plan in China: The Role of Fertility Policy Adjustment and Retirement Delay

“…According to the 2015 1% mini census, 0.14 billion members of the population in China were aged 65 and over, which accounts for 10.47% of the total population; this proportion is 4.1% higher than less-developed regions [1]. An increasingly aging population exerts an upward payment pressure on China's pension system, particularly the Urban Employees' Pension Plan (UEPP) [2][3][4]. In 2015, the cash flow of the UEPP fund was negative in 25 of 31 provinces [5].…”

Quantitative Analyses of Transition Pension Liabilities and Solvency Sustainability in China

“…Moreover, the definition of implicit pension debt in Li Yang (2013) is similar to the definition of open-system liabilities, and hence, his hierarchical computing method was conducive to a deeper understanding of the sources of pension liability and the repayment mechanism. Liu et al (2015) constructed basic actuarial models that considered the expenditures of old retirees, middle retirees, and new retirees to forecast the liquidity gap of the social pooling account [7]. Their study, however, did not take into account differences in the insured population projections between the old and new pension systems.…”

Stochastically Assessing the Financial Sustainability of Individual Accounts in the Urban Enterprise Employees’ Pension Plan in China

“…Generally, the interactions of the pension system, wages, interest rates, migration, and labor supply are considered in a general equilibrium model such as the overlapping-generations model [50,51,54]. In this paper, these factors are given exogenously according to the relevant literature [14][15][16][19][20][21]28]. In fact, the factors are calibrated according to average values over a comparatively long period, during which the interactions have been roughly considered.…”

“…Although China has not yet formed an official long-term financial, actuarial reporting system for basic pensions, the Chinese government and scholars have conducted extensive research on the financial sustainability of basic pensions. These studies have helped to understand the long-term financial sustainability of China's basic pensions, to accelerate the formation of China's official long-term financial, actuarial reporting system, and to demonstrate China's experience in solving the pension crisis brought about by its aging population [13][14][15][16].…”