Balancing economic growth and pension adequacy: The combined effects of contribution rate reduction and retirement age postponement

Minglu Wang, Yifan Pan and Peng Jing

International Review of Economics & Finance, 2025, vol. 102, issue C

Abstract: Pension contribution rate reduction and retirement age postponement are two key components of China's pension reform, albeit motivated by distinct policy objectives. This study develops an overlapping generations model to evaluate their effects on economic growth and pension adequacy and identify an appropriate policy mix. The results show that the two policies are theoretically complementary: reducing the contribution rate stimulates economic growth but lowers the pension replacement rate, whereas delaying the mandatory retirement age has the opposite effects. A well-calibrated policy mix can simultaneously promote economic growth and enhance pension adequacy when the output elasticity of physical capital declines or the technological progress accelerates. These findings remain robust when the model incorporates agent heterogeneity and human capital. Moreover, under a flexible retirement scheme, reducing the contribution rate has no discernible impact on economic growth, and the associated decline in pension adequacy is negligible. This suggests that combining contribution rate reduction with flexible retirement may constitute a more effective strategy for balancing economic growth and pension adequacy.

Keywords: Pension contribution rate; Mandatory retirement; Flexible retirement; Economic growth; Pension adequacy (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:102:y:2025:i:c:s1059056025005258

DOI: 10.1016/j.iref.2025.104362

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