Reforming China’s Pension Scheme for Urban Workers: Liquidity Gap and Policies’ Effects Forecasting

Abstract

This study forecasts the liquidity gap in China’s pension scheme for urban workers in the context of an ageing population and the possible effects of recent governmental policies by constructing a basic pension model, including “old people”, “middle people” and “new people” and a simulation method. We find, firstly, that China’s liquidity gap of pension will reach its peak of approximately 13.11 trillion yuan in 2038. Subsequently, this gap will gradually decrease with growth in the mortality rate. Secondly, reasonable intervals for the replacement and contribution rates should be set at [0.417, 0.604] and [0.189, 0.262], respectively, to sustain China’s pension system. Thirdly, compared to increasing fiscal subsidies, an income doubling plan, raising the contribution rate, lowering the replacement rate and delaying the retirement age can significantly reduce the liquidity gap, although the policy costs are relatively high. A policy permitting families to have two children will increase the rate of reduction of the liquidity gap, but it cannot effectively narrow the gap at the peak moment.

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Cite this paper

@inproceedings{Liu2015ReformingCP, title={Reforming China’s Pension Scheme for Urban Workers: Liquidity Gap and Policies’ Effects Forecasting}, author={Xiaoxing Liu and Ying Zhang and Yuanxue Li and Wenqing Pan and Weidong Huang}, year={2015} }