Financing Reform Of Urban Employees' Pension In China: Economic Effects And System Designing

Presently the China basic pension system is composed of employees' pension,public institutions pension,and urban and rural residents' pension.The latter two types of pensions has the similar framework with the employees' pension,and from the respects of participants,the scale of fund income and expenditure,benefits and reform process,the employees' pension has been the core and focus of China pension system reform.The reform of China urban employees' pension originates from the mid and late period of 1980 s.At that time,the focus of the reform is to carry out social pooling and make pension the real social insurance instead of enterprise insurance.In 1990 s,the individual account was brought into China pension reform based on social pooling and pilot experiments were started after 2000.After thirty years of efforts,China employees' pension takes the form of combining social pooling and individual accounts while how to consolidate the individual accounts and make up transformation cost brings high pressure to local governments and makes notional account a practical choice.Liaoning is the first pilot province,and is also the only one that really fully funded individual accounts.However individual accounts turn back to empty accounts because public finance suspended providing subsidies to fill the gap of social pooling fund.In a word,the present reform of urban employees' pension in China focuses on the mixed model of combining social pooling and individual accounts in terms of whether to fund or how to fund for the empty account.Compared with the problems,the high contribution rate and gap between income and expenditure is more obvious.Presently the contribution rate is generally 20% which influenced the participation of enterprises.The urban employees' pension collected 2043.4 billion Yuan and the expenditure reached 2175.47 billion Yuan in 2014.The gap between income and expenditure demonstrates that the public finance has to offer a favor even if nationwide pooling is realized and the individual accounts are not funded.So the expand the resources of pension fund and assure the economic efficiency(lowering the contribution rate of enterprises)becomes the urgent problem for China urban employees pension.However it's hard to lower the contribution rate of enterprises when other financing channels are not available and the pension fund is under pressure of aging and immediate expenditure.Then could we change the route to adjusting the base for contribution? The base of enterprises' contribution has been the sum of wage or the employees' contribution.However reality in China has proposed the internal requirements to change the contribution base.The paper will put aside the traditional conceptions and take income(operation income or increment value of enterprise)as the contribution base for enterprises and make a comparative analysis between this and traditional method.Whether to change enterprise contribution base and whether to fund the individual accounts together can be combined as four types of forms: notional individual account with wage as contribution base of enterprise,funded individual account with wage as contribution base of enterprise,notional individual account with income as contribution base of enterprise,funded individual account with income as contribution base of enterprise.The paper sets up models to make static analysis of the four forms and tries to seek the target model of financing reform for China employees' pension.1.Notional individual account with wage as contribution base of enterprise(NW model)This is the simulation of the China urban employees' pension and the benchmark for the comparative static analysis.After the analysis we can conclude:First,if the contribution rate of employees and enterprises is lowered,capital-labor ratio,output-labor ratio,capital-output ratio,saving per capita,average wage,working-period consumption per capita,retirement-period consumption per capita and life-time utility will rise while interest rate,pension benefits,and replacement rate would decline under NW model.And the consequence will be reverse if the contribution rate of employees and enterprises is increased.Second,in the case of NW expanding the coverage range of China employees pension and increasing the ratio of participants over all the employees could decrease capital-labor ratio,output-labor ratio,capital-output ratio,saving per capita,average wage,working-period consumption per capita,retirement-period consumption per capita and life-time utility while leading to the higher capital return(interest rate)and the unchanged replacement rate.Third,growth rate of employees will decline as the growth rate of population declines,which will increase capital-labor ratio,output-labor ratio,capital-output ratio,saving per capita,average wage,working-period consumption per capita,retirement-period consumption per capita and lifetime utility,and decrease interest rate and replacement rate under NW model.2.Funded individual account with wage as contribution base of enterprise(FW model)When the enterprise takes the wage as the base of contribution,the enterprise contribution rate could be increased to digest transition cost and transform the empty account into real account.During the process,individual contribution will not be released as pension but entering capital market.However the individual accounts of the retired employees are still empty and the pensions have to be paid the concurrent contribution.Through comparative static analysis we can conclude:First,under this model decreasing enterprises' contribution rate of China employees pension will bring the higher capital-labor ratio,output-labor ratio,capital-output ratio,saving per capita,average wage,working-period consumption per capita,retirement-period consumption per capita and life-time utility,and lower interest rate,average pension and replacement rate.Correspondingly increasing enterprises' contribution rate will bring the opposite influence.Second,after fund the individual accounts,the goals of increasing pension and replacement can be realized by increasing individual contribution rate of pension without influencing other variables.Third,expanding the coverage range of China employees pension and increasing the ratio of participants over all the employees could decrease capital-labor ratio,output-labor ratio,capital-output ratio,saving per capita,average wage,working-period consumption per capita,retirement-period consumption per capita and life-time utility while leading to the higher capital return(interest rate)and the replacement rate under this model.Fourth,growth rate of employees will decline as the growth rate of population declines,which will increase capital-labor ratio,output-labor ratio,capital-output ratio,saving per capita,average wage,working-period consumption per capita,retirement-period consumption per capita and lifetime utility,and decrease interest rate and replacement rate.3.Notional individual account with income as contribution base of enterprise(NYmodel)The third model is to make individual contribution unchanged and maintain unfunded individual account with enterprise contribution increased.After the static analysis,we can conclude:First,under this model decreasing individuals' or enterprises' contribution rate of China employees pension will bring the higher capital-labor ratio,output-labor ratio,capital-output ratio,saving per capita,average wage,working-period consumption per capita,retirement-period consumption per capita and life-time utility,and lower interest rate,average pension and replacement rate.Correspondingly increasing individuals' or enterprises' contribution will bring the opposite effects.Second,expanding the coverage range of China employees pension and increasing the ratio of participants over all the employees could decrease capital-labor ratio,output-labor ratio,capital-output ratio,saving per capita,average wage,working-period consumption per capita,retirement-period consumption per capita and life-time utility while leading to the higher capital return(interest rate)under this model.Third,expanding the coverage range of China employees pension and increasing the ratio of participants over all the producers could decrease capital-labor ratio,output-labor ratio,capital-output ratio,saving per capita,average wage,working-period consumption per capita,retirement-period consumption per capita and life-time utility and lead to the lower capital return(interest rate)and pension,replacement rate as well under this model.Fourth,growth rate of employees will decline as the growth rate of population declines,which will increase capital-labor ratio,output-labor ratio,capital-output ratio,saving per capita,average wage,working-period consumption per capita,retirement-period consumption per capita and lifetime utility,and decrease interest rate and replacement rate of pension.4.Funded individual account with income as contribution base of enterprise(FY model)The fourth model is to maintain constant individual contribution rate and change the enterprise contribution base and realize the transformation from unfunded account to funded account.We can conclude with the static analysis:First,under this model decreasing enterprises' contribution rate of China employees pension will bring the higher capital-labor ratio,output-labor ratio,capital-output ratio,saving per capita,average wage,working-period consumption per capita,retirement-period consumption per capita and life-time utility,and lower interest rate,average pension and replacement rate.Correspondingly increasing enterprises' contribution rate will bring the opposite effects.Second,the goals of higher pension and replacement can be realized through increasing individual contribution after funding the individual account without affecting other variables.Third,expanding the coverage range of pension could lead to lower saving per capita,average pension and replacement rate without affecting other variables under this model.Fourth,expanding the coverage range of China employees pension and increasing the ratio of participants over all the producers could decrease capital-labor ratio,output-labor ratio,capital-output ratio,saving per capita,average wage,working-period consumption per capita,retirement-period consumption per capita and life-time utility and lead to the lower capital return(interest rate)and pension,replacement rate as well under this model.Fifth,growth rate of employees will decline as the growth rate of population declines,which will increase capital-labor ratio,output-labor ratio,capital-output ratio,saving per capita,average wage,working-period consumption per capita,retirement-period consumption per capita and lifetime utility,and decrease interest rate and replacement rate of pension.Through the comparative static analysis of FW,NY,FY and the NW model,we can conclude: First,it's unnecessary and unfeasible to increase enterprise contribution rate to fund the China urban employees' pension with the individual contribution rate and the base for enterprise contribution constant.Second,taking the income instead of wage as the enterprise contribution rate could bring more positive influence to economy with individual contribution constant.Third,with wage substituted by income,funding individual accounts will bring more positive influence.In a word,based on the premise of constant individual contribution in both base and rate,enterprises taking income instead of wage as the base for contribution and funding the individual accounts could promote the capital,expenditure and consumer welfare compared with other ways.Thus the target model for financing reform of China unban employees pension is to take income as the base for enterprise contribution,define the appropriate contribution rate and realized the funding of individual accounts.The final conclusion is given: The target for the financing reform of China urban employees pension is to keep the social pooling and individual contribution unchanged,take operating income and incremental value as the base for enterprises contribution,define the right contribution rate to transform empty accounts into real accounts,and realize the self-balance and self-development of the system.