Analysis on the Actuarial Balance of China's Basic Pension Benefits

Analysis on the Actuarial Balance of China's Basic Pension Benefits

Financial sustainability of public pension system is of great concern in recent years. In this paper, actuarial models for both the PAYG national account and the funded individual account are built. Instead of evaluating the actuarial balance of China's basic pension system of a particular year (as most of the papers do), the incomes and expenditures of insurance funds are analyzed based on the whole life span of a typical worker. The rationale is that, a successful pension system should be able to reach a balance when considering the whole life span of typical worker. Data from China's National Bureau of Statistics is used to calculate the present values of pension contributions and benefits of a typical worker. Experimental results suggest that China's current basic pension system is not sustainable. By varying the affecting factors of the pension system, we find that raising the retirement age, increasing the wage growth rate, and increasing the growth rate of pension funds will improve the deficit problem of China's current basic pension system. Increasing pension benefit growth rate, however, will worsen the financial situation of the pension funds significantly.