The Sustainability Research On The Basic Endowment Insurance System For Urban Employees In China

The partial accumulation model(combination of social pooling and individual account) of the endowment insurance system has been implemented for nearly 20 years in China, but many major problems still inherent within the system, such as the level of pension, imbalance of funds, etc. So it is still an important issue for both of the ordinary people and the top-level designers. In this paper, we keep the main research route which the financial ability of pension funds must guarantee the level of pension, and name it to “the sustainability of the pension system”.This paper’s main contents and methods contain the following six sections:Chapter I. To point out that the issue is a realistic worthy problem, conduct a systematic review and summary involved with the meaning of sustainable pension system, the overall balance of the pension insurance fund, urban employee pension insurance fund balance, transition costs, individual accounts balance way, the impact of inflation, pension benefits adjustment, etc.At last, it gives a brief comment on the review and puts forward this paper’s overall research framework and main contents.Chapter II. The sustainability of existing pension system includes specification meaning and technical constraints. This chapter describes the theoretical basis and technical conditions in this area, including the old and new welfare economics, public goods theory, life cycle theory, overlapping generations model, mechanism design theory, actuarial theory and accounting equilibrium theory, etc. To put forward sustainable definition and technical conditions for China’s partial accumulation model of the endowment insurance system.Chapter III. Firstly, it reviews the efforts made in achieving sustainability of China’s pension system. Then, based on the theory of sustainable pension system and technical conditions, we make an empirical analysis on the operation status of the fund during the transition period of China’s pension insurance system to evaluate the sustainability of the current pension system. The concrete methods include the mathematical model of the partial accumulation system and the insurance actuarial technology. To analyze the fund’s ability to keep sustainable according to three parts of the system structure---the social pooling fund, the individual account fund and the general fund.Chapter IV. To give empirical analysis on five aspects of the current system and try to find out the unsustainable reasons. It includes the degree of aging within the pension system, the unreasonable design ideas on overall system, the unreasonable proportion between social pooling and individual account, the transition costs and the impact of inflation. The analysis methods include econometric regression method, actuarial algorithm, mathematical equilibrium model of partial accumulation system. And redefines the meaning of the transition cost and introduces the inflation risk model on depreciation of the fund. The study finds that both of the transition costs and the aging population within the pension system are not the causes which lead the current system to be not sustainable. The main reason lies in that unreasonable system design ideas which have high contribution rate, low rate of substitution, and it is absence of incentives to make the system perform poorly which leads the main source of revenue collection to be inadequate; the secondary reason is that the proportion of Pay-as-you-go(PAYG) and fully funded is unreasonable, which can’t make the system reach the actuarial balance and effective risk control; at the same time, inflation exacerbates the unsustainable risk of system.Chapter V. To calculate the fund balance during the future overall the transition period and predict the future sustainability of the system. Main calculation methods include the population prediction method which is based on the number of people at the initial transition year 1997. To use the life table theory to calculate the demographic structure within the system throughout the transition period. It defines the relevant economic variables, and considers the effects of inflation. If it can come to 100% compliance on premium, there will be no funding gap problem under the rational design of the existing system, and the system will have a sustainable future.Chapter VI, Based on the foregoing findings, we propose the following policy recommendations to achieve sustainable pension system. The first one is that we should promise the “basic security” replacement rate target and reduce the total insurance fee rates to support compliance rates and executive power of the system, and ensure the normal collection of pension income; the second one is that we should ensure the reasonable and timely adjustment to the ratio of two parts of overall fund, then reach to actuarial balance and ensure the future long-term soundness of the system and risks controllable; the third one is that we should measure reasonably the total quantity of individual accounts funding gap on longevity and transition costs, and the government should eventually bear all the responsibility to reflect quasi-public goods nature of pension system, and clarify the responsibilities on both of inside and outside of the system; the forth one is that individual account should develop the Notional Defined Contribution(NDC) system, which will be more suitable for the current situation of our country; the fifth one is to improve the return of investment(ROI) of individual account, and adjust reasonably pension policy of payment,then we can ensure the fund’s function to cumulate value and increase system capacity to resist inflation risks.