Lessons From The OECD Countries' Pension Investment On China's Pension System

It has been through more than 100 years since the birth of social pension system. However, due to the global financial crisis and aging of the population, it is doubtful whether the system can be financially sustainable and keep the assets hedged. Reasonable investment of the pension assets is of great importance for the system itself, participants and the capital markets in every country. Especially for China, we are in the wave of reform among various undertakings including pension reform and capital market reform. Our pension system is far from perfect and the capital market is also very immature. So in this kind of context, the study of pension investment is of great practical significance.Pension systems in OECD countries are mature and advanced, and they have accumulated a lot of lessons and experience in this area. This paper makes a systematical and comprehensive presentation on factors affecting the pension size, investment rate of return and problems they are facing currently. We also compare the status quo of pension system in China with OECD countries related to problems mentioned above from both horizontal and vertical aspects. We also find out the shortcomings of the pension system in China, and factors affecting interaction between capital market and pension funds. Some reasonable proposals are made for the development of pension funds and capital market in China in the future. These proposals include:1) to increase investments in pension funds from our government; 2) to enrich the pension assets through re-allocation of state-owned shares and foreign reserves; 3) to develop the second pillar and third pillar for our pension system actively; 4) to broaden the investment channels for pension funds; 5) to introduce the market mechanisms in the management of public pension funds. In addition, the paper also made the Granger causality tests for the interaction between pension funds and the capital market of both OECD countries and China. A conclusion was made that interaction mentioned above involved a variety of conditions.Data unavailability due to short period for some countries is the inadequacy of this paper. This problem may have some effects on validity of our conclusions.