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Stochastic Assessments of Urban Employees’ Pension Plan of China

Yueqiang Zhao (), Manying Bai (), Peng Feng () and Mengyuan Zhu ()
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Yueqiang Zhao: School of Economics and Management, Beihang University, Beijing 100191, China
Manying Bai: School of Economics and Management, Beihang University, Beijing 100191, China
Peng Feng: COFCO Nutrition & Health Research Institute, Beijing 102209, China
Mengyuan Zhu: School of Electronic Information and Electrical Engineering, Shanghai Jiao Tong University, Shanghai 200240, China

Sustainability, 2018, vol. 10, issue 4, 1-15

Abstract: In the uncertain environment of population and economy; the pension plan for urban employees in China is under threat from various types of financial risk. This paper mainly builds a comprehensive risk assessment system to evaluate the solvency sustainability of the urban employees’ pension plan of China. Specifically, we forecast annual accumulative net asset; actuarial balance; and potential support ratio for the next seventy years. To account for the impact of demographic uncertainty on long-term finances, stochastic simulations are used to estimate the probability distribution of relative risk indicators. Moreover, we integrate the Lee–Carter model into the population projection. According to the median projection, the public pension fund will have a gap in about 35 years; and the cash flow will be negative about 25 years later. Furthermore, under the existing policy, the burden of insured employees will increase rapidly. Delayed retirement could relieve the coming solvency risk, but it does not fundamentally resolve the solvency problem in the long run.

Keywords: pension plan; solvency sustainability; actuarial balance; potential support ratio; stochastic simulation; probability forecast (search for similar items in EconPapers)
JEL-codes: Q Q0 Q2 Q3 Q5 Q56 O13 (search for similar items in EconPapers)
Date: 2018
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