Research On The Relationship Between Public Pensions And Retirement Age Under The Background Of Population Ageing

Under the background of population aging, many countries are facing pension balance of payments pressures, especially more so for our country, In order to ease the pension payments pressure, scholars have proposed several alternatives such as postponing the retirement age, raising the contribution rate, decreasing replacement rate and the transition to a funded system. Which way can be effective to relieve pressure on pension payments and avoid many adverse impact? In this regard, the current study did not give an answer within the same model framework. In order to remedy the deficiencies, this paper theoretically investigates the effects of different pathway in an OLG model framework. However, from a practical point of view, it's difficult to reduce the replacement rate due to welfare rigidity. In addition, although many countries have shifted to a funded system, but it remains unclear about the actual results. Therefore, this paper mainly focuses on two pathways:delaying the retirement age and increasing the contribution rate.Firstly, this paper estimates the optimal average retirement age according to the principle of welfare maximization, and on this basis, examines the economic impact of postponing retirement age under the pension system of social pooling and individual accounts. Estimation results show that, under the background of population aging the optimal average retirement age ranges from55.1to60, which is higher than the current average retirement age of55in China. Accordingly, we believe that the retirement age should be appropriately deferred, and it is also the policy that is to be implemented in China. Simulation results of delaying retirement age show that postpone the retirement age will reduce the capital stock per worker, consumption and utility level of the young, but will improve consumption and pension benefits of the elderly. Besides, it will also increase the return rate to capital.Secondly, this paper estimates the optimal contribution rates of social pooling accounts based on the principles of welfare maximization and then studies the effects of raising the contribution rate on the economic system. Calculation results show that, the optimal contribution rate changes among the range of10.22%-19.04%. Only from this point of view, the contribution rate should be appropriately reduced. However, if there is no adequate alternative sources of funding in order to guarantee the pension payments, the contribution rate is likely to be raised finally under the background of population aging. Simulation results of increasing the contribution rate show that, raise the contribution rate will reduce the capital stock per worker, consumption and utility level of the young, but improve the pension benefits and return rate to capital of the elderly. However, differently from delaying retirement age, if the contribution rate exceed a certain upper limit then raise the contribution rate will reduce the consumption of the elderly. From this point of view, it can be seen that when other conditions remain unchanged, the policy of postponing retirement age is superior to raising the contribution rate.When the population growth rate is constant, we can draw the conclusions above. But we ignore the impact of delaying retirement age or raising the contribution rate on fertility rate. If fertility will be reduced by postponing the retirement age or raising the contribution rate, then the lack of adequate population will eventually make the pension system unsustainable. Therefore, this paper finally examines the impacts of delaying retirement age and raising contribution rate on fertility rate. The results show that delaying retirement age will reduce the fertility rate, but it will increase the savings rate and economic growth rate. Raising the contribution rates will also reduce the fertility rate and increase economic growth rate, but has no effect on the savings rate.Overall, despite little difference, policy of postponing the retirement age is superior to raising the contribution rate. However, the government should fully weigh the impacts of postponing retirement age on economy and society, especially the impact on fertility rate when enact the specific policies of postponing retirement age so that minimize the adverse factors according to the policy objectives.The main contribution of the article is to construct a unified, comparable model framework, under which we conduct an comprehensive, systematic and in-depth comparison between delaying retirement age and increasing the pension contribution rate, so that we can understand theoretically the impacts of different approaches on economic and social aspects. Within this unified model framework, we investigate the impacts of postponing retirement age on fertility for the first time, which provide some new insights on for decision-makers on retirement policy.