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Estimating the impacts of demographic and policy changes on pension deficit : a simple method and application to China

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  • Zeng Yi

    (Duke Univ.)

Abstract

This article derives a simple method for projecting pension deficit as percent of GDP in future years based on commonly available population forecasting and a few predictable economic and policy variables. Compared with the classic basic equilibrium equation of pension funds, our new formula decomposes the retirees-workers ratio which mixes various kinds of impacts into three more-easily-predictable variables the elderly dependent ratio, the prevalence of pension coverage, and the employment rate. Our illustrative application to China shows that gradually increasing the current low minimum age of retirement will largely reduce the pension deficit, under various demographic regimes. The pension deficit as % of GDP in the low fertility scenarios (which corresponds with keeping the current rigid fertility control policy unchanged in the long-run) would be 5.6-11.1, 3.8-6.3, and 9.0-13.8 times as high as that in the Medium Fertility & Medium Mortality scenarios in 2040, 2060, and 2080.

Suggested Citation

  • Zeng Yi, 2006. "Estimating the impacts of demographic and policy changes on pension deficit : a simple method and application to China," Labor Economics Working Papers 21822, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:laborw:21822
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    File URL: http://www.eaber.org/node/21822
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    References listed on IDEAS

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    1. Becker, Charles & Bloom, David, 1998. "The demographic crisis in the former Soviet Union: Introduction," World Development, Elsevier, vol. 26(11), pages 1913-1919, November.
    2. Charles M Becker & Sergey Paltsev, 2001. "Macro-Experimental Economics in the Kyrgyz Republic: Social Security Sustainability and Pension Reform," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 43(3), pages 1-34, September.
    3. Haberman, Steven & Lam, Yuk Patrick & Wong, 1997. "Moving average rates of return and the variability of pension contributions and fund levels for a defined benefit pension scheme," Insurance: Mathematics and Economics, Elsevier, vol. 20(2), pages 115-135, September.
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    Keywords

    demography; Pension; China;
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