‍Incentives of deferring retirement and optimization of pension system: based on the experience of “provident fund system” and partially funded system

LI Rui1 YAN Lihuizi1 ZHU Yating1

(1.School of Public Administration, Zhongnan University of Economics and Law)

【Abstract】This paper compares the difference between partially funded system and provident fund system from the perspective of deferred retirement incentives, and introduces the pension yield rate as the selection criterion. By using the overlapping generations model (OLG) and actuarial models, the pension system is structured and analyzed. On this basis, life-cycle wealth choice model is used for empirical analysis. The results show that the average retirement age of workers in Suzhou industrial park is nearly two more years senior than that in Suzhou. Theoretical analysis shows that historical contribution of workers will affect retirement behavior. Endogenous incentives are key factors leading to the difference in retirement age between the two systems. Institutional factors, such as wage index and payment months, have different effects on retirement incentives under the two systems. Under the same conditions, the low human capital group is more inclined to early retirement. It is suggestive to take the labor contribution of workers and the policy effect of the individual heterogeneity into consideration. In contrast to delay retirement age, the establishment of institutional endogenous incentive mechanism and the structural adjustment of pension system can be a better option.

【Keywords】 partial accumulation system; accumulation fund system; deferred retirement incentive;

【DOI】

【Funds】 Youth Project of National Social Science Foundation (No.13CGL098)

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(Translated by HONG xiang)

    Footnote

    [1]. ① Income opportunities include three parts: wage structure, PAYG public pension and funded private pension. [^Back]

    [2]. ① This regulation is applicable to employees who start to work after the implementation of decision of State Council on establishing a unified basic pension insurance system for enterprise employees. Others are handled based on specific situations. [^Back]

    [3]. ② Being not the research object of this paper, deposit amount equaling to pension contribution for insured employees in special professions (such as soldiers) is ignored here. [^Back]

    [4]. ① This paper respectively measures rates of return on pension for different average life expectancy. To enhance contrast effect, this paper only describes variation trend of rate of return when life expectancy is 75 and 100. [^Back]

    [5]. ② In 2011, Suzhou industrial park changed its pension system to nationwide approach of partially funded system, so this paper uses the data up to 2010. [^Back]

    [6]. ① To increase reliability of the actuarial result, this paper makes a sensitivity analysis on factors affecting rate of return variation. Details will not be given here due to space limitation. [^Back]

    [7]. ② The reason why 65 is regarded as a “turning point” is as follows: before 65, Suzhou industrial park computes and grants the maximum value of pension based on partially funded system while after 65 it does that based on provident fund system, thus altering the changing track of the rate of return curve. [^Back]

    [8]. ① Total number of the sample in Suzhou industrial park is 6,851, with 2,652 males and 4,199 females. One percent of the total samples in downtown Suzhou are randomly picked out to be the samples in this paper, which are 73,269, with 26,652 males and 46,617 females. [^Back]

    [9]. ② Please refer to notification on determining model cities in constructing golden insurance project for specific variables and definitions. [^Back]

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This Article

ISSN:1000-7881

CN: 11-1043/C

Vol , No. 06, Pages 25-35+126

December 2016

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Article Outline

Abstract

  • 1 Introduction
  • 2 Theoretical framework and model building
  • 3 Distribution of actual retirement age and actuarial analysis
  • 4 Empirical Analysis
  • 5 Conclusion and policy suggestion
  • Footnote

    References