Rethinking China's pension reform——The relevance of international experiences

Pension funds remain scarce no matter what institutional design is adopted. China has a host of unique issues facing its pension system,issues that must be confronted; for instance,the disappearance of its demographic dividends and legacy costs incurred due to institutional transition. Such features determine that China’s pension system is merely passable at the present time. In this article,Professor Cai Fang offers new and incisive perspectives on this issue,such as the potential stimulus for economic growth by ageing people’s desire to save money for old-age provisions.

Optimization of Pension Asset Portfolio in Nigeria with Contributors’ Specified Return Rate

This work focuses on the optimization of investment contributions of pension asset with a view to improving contributors’ participation in achieving better return on investment (RoI) of their funds. We viewed some new regulations on Nigeria’s Contributory Pension Scheme” (CPS) from amended legislation of 2014, some of which are yet to be implemented when their regulations are approved. A mathematical model involving 5 variables, 5 inequality constraints covering regulatory limitations and limitation on scarce resource known as Asset Under Management (AUM), suggested and mathematically shown to be possible through “maximization of return irrespective of risk” while obeying all regulatory controls as our constraints optimized. Optimized portfolio using MatLab shows that the portfolio representing AES 2013 portfolio with a deficit growth of 15.75 m representing 3.27% less than the portfolio’s full growth potential within defined assumptions would have been averted if contributors actually set their targets and investment managers optimize from forecasts of future prices using trend analysis.

Research on the impact of pension income and expenditure patterns on the pension replacement rate of public institutions

Currently in China, to study the replacement rate of pension reform in public institutions and to find out the key problems, which is of practical significance for the reform of the pension insurance system. In this paper, the impact of pension income and expenditure patterns on the substitution rate is analyzed, and the factors that affect the level of substitution rate are analyzed, and the corresponding policy recommendations are put forward.

Population Ageing and Sustainable Development Research in China

According to the United Nations population projections, the population of the elderly is expected to roughly triple in China from 2000 to 2050, particularly when the generations who were born between the 1950s and 1970s move through the age structure, and also because people are living longer and fertility rates have fallen, population aging is expected to put pressure on government's fiscal balance through higher old-age security benefits and health-care expenditures. This work draws together the broad range of elements involved within a consistent framework, based on a computable dynamic general equilibrium model with an overlapping generation structure. Further analysis using model simulation illustrates that the alternative schemes for the benefit rate, retirement age and technological progress are likely to be beneficial, and that an obvious slow-down in the growth of living standards is likely to be avoided.

Pension reform:Australia and China compared

Over the past few decades,China’s pension system has evolved from separate schemes almost exclusively for urban and public sector workers to one with broad national coverage.In a similar time-frame,successive Australian governments have introduced reforms to Australia’s retirement income arrangements in an attempt to increase retirement savings and address age-related pressures on the financing of the publicly provided age pension.This paper compares,contrasts and assesses the pension systems in China and Australia.Although China and Australia are at different stages of economic development and demographic transition and operate quite different pension systems,there are lessons to be learned from each other.

Rethinking Pension Reform in China

In linewith advicefrom internationalfinancial institutions, China introduced a three-pillar pension system in 1997. However, it performs badly, with high contribution levels, the ‘funded’ contributionsbeing used forcurrent expenditures,and delaysinpension payments. The problemsareoften ascribed tothe remaining elements of pay-as-you-go (PAYG) present in thesystem. Thispaper, however, arguesthat the advantagesofa fully-funded system (FF) havebeen exaggerated. The higher relative return of the PAYG system in China justifies a PAYG pension system forChina. It is arguedthat theproblemsoftheChinesepension system are not caused by the use of PAYG butbytheneed to finance transition costs and conditions particularto the pension system in China, notablyincomplete contribution coverage, a low pension age, and a high replacement rate. Itisthesefactors, and therateofgrowth ofoutput, which determine the viabilityof theChinese pension system.

THE RATE OF RETURN ON CAPITAL FOR PENSION SYSTEM IN CHINA

The rate of return on capital is a key parameter in pension reform policy making. While evaluating pension reform, the method Feldstein proposed to measure the rate of return on capital is widely adopted. Here we calculate the rate of return on capital in China by this method. The calculation demonstrates that the rate of retum on all the industrial enterprises is around 6.5 percent from 1996 to 2000, and the average rate of return on state-owned industrial enterprises is lower than the above figure by 1.5 percent during the same period. Finally, we draw a conclusion that the rate of return ranging from 5 to 7 percent is appropriate for the pension reform in China.

Creating fiscal space to pay for pension expenditure in Asia

Many Asian countries are projected to age rapidly and will need to devote a larger proportion of their GDP to finance age-related expenditure including on pensions.Governments therefore will have to create additional fiscal space to fund such expenditure to sustain the credibility of existing pension promises.This paper presents an exploratory framework for creating fiscal space.The framework has three interrelated components:enhancing broadbased growth,improving revenue performance and better expenditure management.The paper distinguishes between funding of pensions,i.e.the share of GDP devoted to pensions,and financing of pensions,i.e.the different methods and instruments used to finance pensions.The focus of the paper is on funding,and the framework relies on both the income-expenditure flows and the government balance sheet to create fiscal space.Several examples of how potential fiscal space can be created in Asian economies of China,India and Indonesia to make their pension promises more credible are provided.The paper emphasises that the measures discussed for enhancing fiscal space should not be undertaken as a purely technical exercise,but should be combined with managing the political economy in a given context.

China's Pension Reform and Capital Market Development

The paper analyzes the interaction between the pension system and capital marketdevelopment, especially the case of China. A funded pension system is most likely to boostthe capital market, but in the absence of a supportive financial infrastructure and effectivefinancial regulation, a funded system will not be successful. Chinas determination to establisha partially funded system is a first step in the right direction, but without the separation ofindividual accounts from the social pooling and their replenishment, the working out of theimplicit pension debt, and improvements in pension fund management and regulation, thepension system will not be sustainable. The key to capital market development in the processof the pension reform is to enact laws to protect the interests of pensioners, to contract outpension fund management to professional asset managers, and to accelerate the financialopening.

China’s Urban and Rural Old Age Security System: Challenges and Options

This paper reviews the development of the urban and rural old age security system in China, and discusses the challenges in the process of constructing a sustained old age security system. Althoughfunding gaps and empty individual accounts have imposed a heavy burden on the sustainability of China ＇s urban pension system, there is a relatively high coverage rate of 35.3 percent for urban workers. However, China＇s pension system provides low coverage ratefor rural farmers. The more rapidly aging population and lower incomes in rural areas pose challenges to the vulnerable rural househoM support system. The separation of the oM age security system between rural and urban areas also puts great pressure as a result of urbanization on farmers who lose their farmland. Therefore, it is urgent for China to speed up the reform o fits old age security system to provide an institutional support for its economic and social transition.

Coping with the effects of population ageing on public finances in the European Union and China

The population age structure is changing fast both in the European welfare states and in China,as fertility remains low and longevity continues to increase.The pressure on public pensions,health care and long-term care expenditures is receiving increased attention.Sound public finances in the Euro area call for pension reforms,especially for raising the retirement age.Although the challenges are qualitatively similar in the EU and China,the quantitative picture is different:GDP per capita in China is about 30%of that in the more advanced states of the EU,and the ageingrelated public expenditures as a percentage of GDP is currently one quarter of this ratio in the EU.A particular factor in China is migration of workers to the cities and factories from rural areas.For a harmonious society,their rights to social security,including pensions and their children’s access to education,require modernisation of government institutions.The retirement age in practically all EU countries and in China is currently low,lagging behind the increase in longevity.Increasing the ratio of participating in working life to the average years of retirement is a key to moderating the pressures on public finances.

Implications of population ageing for the Chinese productivity

Since 2000 when China entered the‘ageing society’,the pace of ageing has speeded up.At the same time,traditional growth engines of the Chinese economy(i.e.export and investment)are losing momentum.Against this background,to what extent the expected demographic transformation would affect growth trajectory of the Chinese economy is of great interest.Among new growth engines,productivity has been receiving increasing attention among China’s top policy makers.In this paper,we try to identify both micro and macro effects of ageing on China’s productivity.In general,our research supports the hypothesis that more working experience and/or elder contributes to higher wage growth and total factor productivity,although with a reversed Ushaped pattern.