The choice of pension and retirement systems when post-1960s baby boomers start to retire in China

Hualei Yang

doi:10.1186/s40589-016-0035-x

Abstract

Around 2015, with the alternation of population generation, post-1960s baby boomers start to retire and post-1990s and 2000s baby busters successively enter into labor market in China, which has led to the decrease of working-age population, the increase of pension burden. We use dynamic programming method by improving the traditional OLG model. This paper finds that a combination of immediately delayed retirement and accumulated pension system should be implemented if based on the goal of maximizing output, while a combination of undelayed retirement and accumulated pension system should be implemented if based on the goal of maximizing utility. Certainly, with using efficiency of elements unchanged, with the decrease of working-age population caused by the alternation of population generation, the increase of pension burden and the disappearance of capital dividend, a sharp decline of future economic growth cannot be changed no matter what kind of pension and retirement systems are implemented. In view of the substitutability of family utility and social output and synthesizing reform resistance, a combination of gradually delayed retirement and accumulative pension system should be implemented. At the same time, on the premise of stabilizing short-term economic situation, we should look for a new engine for economic development by system reform in the long run.

Highlights

Around 2015, with the alternation of population generation, post-1960s baby boomers start to retire and post-1990s and 2000s baby busters successively enter into labor market in China, which has led to the decrease of working-age population, the increase of pension burden, and the disappearance of demographic dividend in China
In order to equip the economy with a new engine and evade economic upheaval caused by sharp retirement of post-1960s baby boomers and win time for economic restructure, technological progress, the improvement of population quality, and upgrading of industrial structure in the long period, former engine must be remolded in the short period to stabilize the economy and make it advance slowly and change her track
According to the above model setting, we choose three kinds of pension scenarios: first, according to the characteristics of current pension system and the share of capital contribution in China, accumulated pension system led by the government, τ2 is equal toτ = 0.14, and τ1 = 0; second, pay-as-you-go system led by the government, τ1 is equal to τ = 0.14 and τ2 = 0; and third, the current tongzhang pension system, according to the characteristics of current pension system and the share of capital contribution in China, we give a parameter combination of τ1 = 0.1 and τ2 = 0.04

Summary

Introduction

Around 2015, with the alternation of population generation, post1960s baby boomers start to retire and post-1990s and 2000s baby busters successively enter into labor market in China, which has led to the decrease of working-age population, the increase of pension burden. Around 2015, with the alternation of population generation, post-1960s baby boomers start to retire and post-1990s and 2000s baby busters successively enter into labor market in China, which has led to the decrease of working-age population, the increase of pension burden, and the disappearance of demographic dividend in China (see Fig. 1). In order to equip the economy with a new engine and evade economic upheaval caused by sharp retirement of post-1960s baby boomers and win time for economic restructure, technological progress, the improvement of population quality, and upgrading of industrial structure in the long period, former engine must be remolded in the short period to stabilize the economy and make it advance slowly and change her track. As regards remolding previous engine, for example, the calls for changing pension system and delaying retirement system in the short period to mitigate the impact of decrease of laboring population and excessive pension burden on economic system during the retirement period of post-1960s baby boomers are getting louder and louder in political circles and academy circles

Methods

Results

Conclusion