The Real Old-Age Dependency Ratio and the Inadequacy of Public Pension Finance in China

Abstract

The old-age dependency ratio and the inadequacy of public pension finance has been a particular focus in theoretical and practical fields. Our paper suggests that the sole use of demographic data to calculate the simple old-age dependency ratio (SOADR) leads to the neglect of some important social factors and the underestimation of the seriousness of the insufficiency of pension funds. We suggest the use of a real old-age dependency ratio (ROADR) that considers students of working age, unemployment, low-income employees and retirees of working age. We use these factors in our new model, which calculates the dependency ratio and the accumulation of pension funds. The results of our simulation are presented in this paper. Comparisons are made between the general and real old-age dependency ratios to indicate the urgent need to adopt the real old-age dependency ratio in analysing pension finance. This is especially important given the assumption that China will extend the current social insurance pension system to the national state pension system covering all rural and urban employees and residents in the near future. Some policies that could be used to address these problems are also suggested in this paper.