Aging with fewer children, pension equilibrium and parametric reform: an empirical analysis based on OLG model of China, Japan and the Republic of Korea

LIU Rumei1 HE Guosheng1

(1.School of Economics, Liaoning University, Shenyang, Liaoning 110136)

【Abstract】The crisis of aging with lower fertility has occurred in China, Japan, and the Republic of Korea under the dual effects of the increase of life expectancy and the decline of total fertility rate. According to the simplified OLG model and sensitivity analysis of some parameters, the rise of the elderly dependency ratio and the unreasonable setting of the system parameters (i.e., the replacement rate of pension, contribution rate, and retirement age) have gradually led to the unbalance of pension system in these three countries. Under such circumstance, an appropriate adjustment of the pension parameters would be helpful for improving the balance of public pension, alleviating the financial burden of the government, and maintaining the long-term sustainability of public finance. Accordingly, three countries have carried out the structural and parametric reform of pension system. The structure reform of pension system is mainly to build a multi-pillar pension model based on public pension, and gradually expand the proportion of the second pillar (occupational pension). The parametric reform of pension system mainly includes increasing the retirement age, reducing the replacement rate of pension, moderately adjusting and controlling the contribution rate, and expanding the financing channels. The empirical analysis shows that, firstly, the reform of the structure and parameters helps to improve the long-term equilibrium of public pension, and the comprehensive reform of the structural adjustment and optimization of the system parameters should be carried out. Secondly, the reform of the structure and parameters should not only consider the long-term equilibrium of public pension, but also consider its impact on the private savings, the redistribution of income, and the labor market for reducing the side effects of the policy on economic growth. Thirdly, the reform of the structure and parameters should be implemented according to the national conditions, the international standards of social security and other countries’ experience. Some practical policies should be implemented for achieving the Pareto efficiency.

【Keywords】 aging with fewer children; pension equilibrium; parametric reform; OLG model;


【Funds】 Planning Project of Liaoning Social Science Funds (L18BGL029)

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(Translated by ZHONG Yehong)


    [1]. ① According to the definition of World Health Organization (WHO), if the proportion of the population aged 65 and above in a country or region accounts for 7% of the total population, it is identified as aging society; if the proportion accounts for 14%, it is identified as aged society; and if the proportion accounts for 20%, it is identified as hyper-aged society. [^Back]

    [2]. ① Both the old-age dependency ratio and the old-age support ratio indicate the labor burden level of the aged population. The old-age dependency ratio is a theoretical dependency ratio, which is generally expressed by the ratio of the population aged 65 and above to the population of working age from 15 to 64 years old. The old-age support ratio indicates the institutional dependency ratio, which is generally expressed by the ratio of the labor force population aged 20–64 to the population aged 65 or above, showing the number of workers working in the economy for each retiree. [^Back]

    [3]. ① The Republic of Korea promulgated the act to raise the retirement age in 2017, postponing the retirement age by one year old every five years from 2018 and raising the retirement age to 65 years old by 2033. [^Back]

    [4]. ① Economic and political stability and sustainability are the important factors affecting pension reform in EU countries. With regard to the parametric reform of pension, most voters prefer to support raising retirement age or lowering pension replacement rate, rather than increasing contribution rate. [^Back]

    [5]. ① Since 2013, both Japan and the Republic of Korea have upgraded the social security management information system to reduce management cost and improve administrative efficiency. [^Back]

    [6]. ① Raising the retirement age will not only help eliminate the pension gap (policy of the Republic of Korean stipulates that the statutory retirement age is 60 years old, but the retired population cannot receive the pension until they are 61 years old), but also help improve the replacement rate. Therefore, the vast majority of people of the Republic of Korea support the policy of raising the retirement age. [^Back]


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This Article


CN: 22-1017/C

Vol 40, No. 06, Pages 98-111

November 2018


Article Outline


  • 1 Introduction
  • 2 Current situation and trend of aging with fewer children in China, Japan and the Republic of Korea
  • 3 OLG-based pension equilibrium model and empirical analysis
  • 4 Structural and parametric reforms of pension in China, Japan and the Republic of Korea
  • 5 Research conclusions and prospects
  • Footnote