Stochastic Forecast of the Financial Sustainability of Basic Pension in China

Abstract

Abstract:The paper focuses on the stochastic forecast of the financial sustainability ofbasic pension, based on predictions for the population of China. The population was calculated iteratively by using Leslie matrix. An auto-regressive moving average model was adapted for the predictions of the fertility rates and the mortality rates. The Monte Carlo stochastic method was adapted for the projections of the dynamic process of the financial sustainability of the basic pension from 2013 to 2087 by 5000 times simulation. The forecasting results show that the imbalance of basic pension will occur in 2026. If the statutory retirement age is postponed by five years, the occurrence of the financial gap of the basic pension may be delayedby about 20 years, and the median deficit of basic pension will be reduced by about 64.25% in 2087.

Quantitative Analyses of Transition Pension Liabilities and Solvency Sustainability in China

“…Similar to previous studies, we suppose the entry age for insurance is 20 over the long term. Under the current legal provisions of China, male workers retire at 60, women retire at 50, and female cadres retire at 55 [8,15]. However, with the implementation of policies for gradually postponing the retirement age of employees, the retirement age will increase.…”

“…(7) The social pooling replacement rate: According to the State Council No. 38 document, the total replacement rate of an urban employee's contributed payroll tax for more than 35 years is set at [8] and recent changes, we assume that the interest rate under the benchmark scenario is 0.03. (9) Growth rate of the social average wage: To predict the future pension debt, the future growth rate of social average wage is needed.…”

“…W. Cheng et al (2004) presented three types of measures to assess the financial sustainability of the combined OASDI trust funds: (1) annual balances, income rates, and cost rates; (2) trust fund ratios; and (3) open group unfunded obligation [31]. Tian and Zhao (2016) presented the accumulated net asset to evaluate pension fund sustainability [8]. Compared with the indicators introduced by W. Cheng et al (2004), the accumulated net asset is more applicable to assess China's pension plan.…”

“…That said, there are no separate calculations for transition debt and annual expenditures. Tian and Zhao (2016) predicted the solvency sustainability of the social pooling for basic pensions on the basis of demographic projections [8], but they did not measure the transition debt that should have been paid by the social pooling pension fund. To compensate for the pension debt during the transition period, Wang, L. (2016) proposed that the government should increase the legal retirement age, reduce the pension replacement rate, and improve the investment yield of the pension fund [9].…”

Securing Retirement at a Young Age. Exploring the Intention to Buy Longevity Annuities through an Extended Version of the Theory of Planned Behavior

“…Firstly, the increasing average life span raises the issue of ensuring adequate resources throughout people's advanced life. Indeed, it has been recognized that the sufficiency of later life financial assets has a direct impact on elderly poverty rates [2]. Second, if people neglect to set aside sufficient resources to guarantee themselves a comfortable retirement, social support systems will be hampered by an increasing financial burden due to the greater dependence the elderly will exert both on public and private assistance institutions [3].…”