Amelioration or Deterioration? : Basic pension and retirement age under China's new pension policy

Abstract

This paper uses a numerical actuarial model to compare pension replacement rates between old and new policies of China. I investigate several cases under different situations, and the results indicate that the new policy is not a Pareto improvement. In most cases, the male retirees benefit from the transition, while female retirees suffer a pension reduction, especially the women working in blue-collar jobs. However, since the replacement level under old policy is not superfluous, in general, the new pension policy should give the retirees at least equal well-being.

In order to find the general way to raise replacement rates, I apply the model for non-continuous employment careers. The calculation which is in line with the existing economic situation in China shows that a suitable plan could be postponing female retirement age step by step while raising accumulation rate in individual pension accounts by 2 or 3 percent points.