Abstract
Against the background of population aging and economic downturn, the sustainability of pension systems has aroused great concern for governments across the world. To better reflect the pressure of pension payments in the changing context, the paper aims to forecast the annual pension gap of the public pension system for urban employees in China. By the use of Cohort-component population projections and stochastic projection models, the distribution of flow-based annual pension gap in the next fifty years are estimated under basic assumptions. The results show that the pension gap continues to exist from 2017 and keeps expanding until 2070 without any policy reform. Sensitivity analyses of demographics and various combinations of policy parameters on the distribution of future pension gaps are displayed. Wider pension coverage with lower policy threshold is more likely to face larger long-term pension gap.
Highlights
Nowadays the challenge of the sustainability of pension system has become the key point in the reform of social security system for governments all over the world
Under the constraint of the total economic output, the sustainable pension system should be able to provide the beneficiaries with the pre-promised benefits without taking any improper measures
By analyzing the effects of pension reforms, Barr [3] holds that the major concern needed to be addressed in designing the pension system is the conflict between long-term sustainable demands and the impact brought by short-term political pressure and economic fluctuation, which emphasizes on a balance between political sustainability and economic sustainability
Summary
Nowadays the challenge of the sustainability of pension system has become the key point in the reform of social security system for governments all over the world. In terms of China’s urban public pension system, the implicit pension debts are estimated based on different assumptions and methods. Regarding the pension gap of Chinese system, previous research mostly adopts deterministic prediction cash-flow model based on sub-models of demographics, economics and pension systems [17,18,19], whereas very few build stochastic prediction model [20,21]. In the calculation of annual revenue and expenditure of pension systems, various results are presented based on different actuarial model settings and different assumptions of demographic, economic and policy parameters but the basic conclusions are similar: the gap will inevitably exist and remain huge in the long term without the policy adjustment and systematic reform. With more than 20 years of reform, the Public Pension System for Urban Employees has been established with a combination of social pooling and individual account. We decide to calculate the pension gap by combining the two parts together
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