Altruistic motives, uncertain lifetime and urban public pension replacement rates

Abstract

This article employs an overlapping generations model with altruistic motives and uncertain lifetime to investigate China's urban public pension system. We examine the effects of the individual account benefit replacement rate, social pool benefit replacement rate, life expectancy and population growth rate on the capital-labour ratio, pension benefits, consumption and utility. We also find the optimal social pool benefit replacement rate. Raising the individual account benefit replacement rate only increases the individual account benefits. Raising the social pool benefit replacement rate increases the social pool benefits and retirement-period consumption, whereas decreases the capital-labour ratio, individual account benefits, working-period consumption and utility. The fall in the population growth rate increases the capital-labour ratio, social pool benefits, individual account benefits, working-period consumption and utility, whereas decreases the retirement-period consumption. The rise in the life expectancy decreases the six variables. The optimal social pool benefit replacement rate falls in case of either risen life expectancy or fallen population growth rate. It further falls under the joint case of risen life expectancy and fallen population growth rate. It will do more good than harm to raise the individual account benefit replacement rate, reduce the social pool benefit replacement rate and strictly implement the population policy.