1. Public Basic Pension Sustainability in China
Xiaojun Wang
Center for Risk Management and Actuarial Studies
School of Statistics, Renmin University of China

2. Contents
Current Basic Financial Situation about Public Pension in China
Some Future Challenge
Projections of Future Financial Status
Reform Choice and Discussion

3. Basic Situation PAYGO, Pooling fund + IA
For workers, employer 20%(pooling fund)+ Employee 8%(individual account)
For self-employment, 20% social average salary (8% IA+12% pooling)
Ceiling: 300% of social average salary, floor: 60% of average salary
Defined benefit with redistribution
Benefit linked to contribution years and,
½ contribution base+ ½ average salary
Benefit adjustment: irregularly with wage and inflation index

4. Basic Situation-cont1 Basic pension including three different schemes
Workers: different contribution level for formal and unformal employment
Civil servant and other public employee
Rural and urban resident
Public employee: cover about 40 million in 2016
Urban worker: cover about 403 million, active 293 million, cover about 69% of urban employment in 2017
Resident: cover about 513 million in 2017
Average benefit 1521 Yuan/ Per Person

5. Urban Workers’ Basic Pension: Coverage and Dependency Ratio

6. Average Benefit, Contribution and Replacement rate

7. Contribution Income, Balance and Fiscal Subside

8. Rural and Urban Resident Basic Pension: Participant and Dependency Ratio

9. Future Challenge Population ageing
People live longer, longevity risk, old age poverty
Life Expectation: in 1990, in 2015, Beijing 80.18, Shanghai in 2010
Investment risk and low Investment return

10. Financial Sustainable
Basic pension expenditure is about 4.6% GDP in 2016
Average pension/GDP per employee is about 32% in 2016
With population ageing, full employment, full social insurance coverage assumption, pension expenditure will increase to 21%(retirement age 60) or 13%(if retirement age 65) of GDP in 2050s

11. 2015-2090年人口结构 （left：International right：retirement age in China）
Future Population Projection
年人口结构 （left：International right：retirement age in China）

12. Possible Future Trend

13. Actuarial Balance and Financial Sustainability
Long term actuarial Balance
Asset/liability Balance
Future Income cash flow
Fertility, Mortality
Employment
Salary Increase
Coverage
Contribution base, rate
Fiscal subsidy
Investment return ……
Future cost cash flow
Risk rate
Retirement age
Benefit level
Benefit adjustment
Life expectation ……

14. Current Reform Choice
National social pooling: redistribution between pooling region
Increase retirement age: Female 55, Male 60 to age 65
Postponing retirement can delay the appearance of the financial gap and improve the balance in the short run, but not obvious in the long run under current system
Tax Bureau collect contribution: Check contribution base and increase compliance rate
current contribution base /salary, 51% in 2015
Social pension fund balance investment: interest income and investment risk
Encouraging more private pension plans to supply more benefit

15. Discussion
How to keep the financial sustainable of PAYG-financing public pension?
Clarify fiscal subsidy and government responsibility
Transparent and annual financial report
Encourage more and longer contribution, less and shorter benefit.
Auto-enrollment and auto contribution levy mechanism
Delay pensionable age, link pensionable age to life expectation to protect longevity risk
Separate insurance and redistribution