| Pension plan is an important part of the whole social security system. In the long term, whether a pension plan could break even influences the stability and development of the society as well as the life of every member of the society.I focus on the systematic and market factors which decide whether new worker's personal retirement accounts could break even in the long run, as well as the proper allocation with different targets. First of all, I introduce the basic concepts of pension plan, theories and conclusions of domestic and overseas scholars, as well as pension plan reform and the establishment of personal retirement accounts in China. Then, I design a model to estimate the present value of the new workers'account surplus (asset minus liability), according to current pension plan rules. In the model, I apply the method of Monte Carlo simulation to estimate future inflation rate and workers'average wage. The next step is calculating the surplus on the basis of statistics from NBSC, and the results show that there exists heavy deficit. I conduct sensitivity analysis for the six main factors which influence the size of the deficit, and I put forward corresponding suggestions for making relevant policies. Finally, I work out proper solution to satisfy different investment targets. From my research, to increase the retirement age and the number of years to calculate the monthly retirement pension would exert negative impact on other aspects of the society, and the effect of increasing the contribution rate to the personal retirement account is limited, so the best method to offset deficit is to increase the investment yield of pension fund. My suggestion is to recognize that the risk introduced by wage's volatility and fund investment revenue's volatility have the same essence. Thus the government should release the personal retirement pension plan to the risk assets such as stocks, with a reasonable limit, and this will help to reduce the default risk for the pension plan. |
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