Research On The Impact Of Longevity Risk On The Financial Sustainability Of China's Social Pension Insurance And Its Coping Strategy

Now,we are living in an era of longevity.Around the world,the prolongation of average lifespan,either experienced personally or observed as a social phenomenon,has prevailed throughout of the global population,and has become both an irreversible and established fact.While people are enjoying the benefits of longer lives,the longer life expectancy has posed enormous challenges to economic and social,especially to the pension insurance system.Under a specified old-age pension system,the prolongation of life span means the rising of costs of public pension scheme,which is of direct relation to the solvency of the pension funds.Over the past two decades,the continuous improvement of life expectancy has exerted great pressure on sponsors of traditional public pension programs in western countries,bringing to them risks of longer term and more uncertainty and therefore expanded public pension expenditure for the government.In such a context,the debate and discussion about the longevity risks and its impact on the financial sustainability of pension insurance system has gradually become a difficult and hot issue of the world.Since the reform and opening-up policy was introduced 40 years ago,the average life expectancies of Chinese civilians have seen a significant boost,thanks to the great achievements made across the board,including per capita income,social policies,as well as medical and health technology.However,the issues concerning longevity risks in relation to the Chinese social pension insurance have never received enough attention and priority,mainly due to the short implementation history of social pension insurance in China and the long-term and unnoticeable nature of the formation of longevity risks,in addition to the further exacerbation by the influence of the traditional “longevity” culture.Another problem is that,while the development of the current social pension insurance surpasses those of other sectors,the life expectancies of the policyholders and pensioners have also been gravely underestimated during the design phase of the social pension system.Furthermore,numerous elements related to the currently-operational systems and policies have also lacked the dynamic adjustments necessary to adapt to the extended life span.All the above have not only brewed a hidden crisis for the sustainable development of China's social pension insurance system,but also burdened the government with the intensified pressure of the risk-related expenditures.As Chinese social pension insurance system advances from the extensive system coverage to the full coverage of personnel transformation,the continuous improvement of average life expectancy and the prominent aging problem will pose a serious challenge to the financial sustainability of Chinese social pension insurance.In view of this,conducting an in-depth study on the longevity risk of the Chinese social pension insurance and evaluate the financial sustainability of Chinese social pension insurance from the perspective of longevity risks are undoubtedly important in terms of both academic and theoretical value and practical significance.Therefore,against the backdrop of the Report of 19 th National Congress of the Communist Party of China,wherein the initiative “to promote people's livelihood and well-being as well as to make constant progress in providing for the elderly” was proposed,this paper began its discussion with the current Chinese social pension insurance system,use the tendency of an accelerated increase in life expectancy of Chinese citizens as a standpoint,and aimed at the realization of the financial sustainability and sufficient provision of Chinese social pension insurance as an overall goal.During the research process the multidisciplinary approach of studying the longevity risk of Chinese social pension insurance was adopted,and the feasible system optimization measures and countermeasures were explored,all with the hope of providing solid theoretical references,actively neutralizing the impacts of longevity risks,and reaffirming the realization of“providing for the elderly”.The paper is divided into 7 chapters,each of which main contents and viewpoints are provided as follows:Chapter 1,the Introduction.In this chapter,the research problem was presented,and then the theoretical and practical significances of the research were given.In addition,existing studies at home and abroad were sorted out and summarized,and the basic ideas,main contents,as well as the main methods of the research were elaborated.Finally,the main innovations and deficiencies of the paper were put forward.Chapter 2 provided the bases of the theoretical research on financial sustainability of pension insurance is influenced by longevity risk.This chapter mainly elaborated the relevant theoretical bases supporting the research on the selected topic,including the economic of pension insurance,demographic transition theory,risk management theory,and actuarial theory of social insurance.These theories acted as not only the cornerstones of this paper,but also the theoretical and ideological guides for this research.Chapter 3 discussed the risks of longevity and the financial mechanisms for social pension insurance system.Firstly,the concept,classification and characteristics of longevity risk were studied and its relationship with population aging is analyzed.This chapter pointed out that longevity risk is the inevitable trend of population aging.Secondly,the concept,structure,and basic models of the pension insurance financial mechanism were studied.Finally,by theoretically studying the impacts pathway of longevity risks on the pension insurance financial mechanism,pointed out that the longevity risk can influence the financial mechanism of pension insurance through four ways: economic growth,the number and structure of the insured population,the pension payment duration and the behavior of the micro-subject.In addition,by mathematical analysis the effect of longevity risk on the three major public pension insurance financial mechanism,this chapter concluded that any kind of financial mechanism will be impacted by longevity risks and that there is no single and perfect financial mechanism that can prevent and mitigate longevity risks from obstructing the goals of the public pension policy.Chapter 4 investigated the longevity risk of China's social pension insurance system.The evolution process of China's social pension insurance was firstly organized,and the basic design characteristics of China's current social pension insurance system were summarized.Secondly,the current situation and future development trend of China's social pension insurance longevity risk were studied,and on this basis,through subject to the established fact that China's prolonged life expectancy and the real constraints from the design flaws of the social pension insurance system.The potential causes of the longevity risk of social pension insurance in China was also analyzed.Finally,the effect of increased longevity on pension expenditures in China was verified empirically using the panel data from a total of 31 Chinese provinces,autonomous regions,and municipalities from 1995 to 2014.The research results showed that the life expectancy had a significantly positive impact on China's pension expenditure level.This is believed to have become the important factors for the increased spending on pension insurance in China in recent years.Chapter 5 introduced the effect of longevity risks on the sustainable financial development of China's social pension insurance.This chapter was built on the key idea that the prolongation of life expectancy will have an impact on the total population,thereby leading to changes in the number of people that may benefit from the social pension insurance,and affecting the financial balance of the pension funds.Firstly,a forecasting model for the insured population was established to estimate the impact of longevity risks on the number of people to be benefited by the basic pension insurance as well as the dependency ratio.The results showed that the longevity risks resulted in a year-by-year increase in the difference of the insured population of the basic pension insurance and the dependency ratio.Secondly,the pension actuarial model is constructed.Based on the above-mentioned forecast on the insured population,the effects of the longevity risk under the current system on the collection revenue,fund expenditures,current balances,and cumulative balances of the social pension funds were estimated.The results showed that if the existing system were to be kept unchanged,improvement of the life expectancy during the forecast period will result in an increase in the revenue and expenditure of the basic pension funds.However,the longevity risk had a much greater effect on the overall expenditure than the revenue,resulting in the presence of deficit on the fund's current and cumulative balances.Moreover,as time passes,the deficit will increase year by year.By 2050,the current deficit and cumulative deficit will reach 1,150.789 billion yuan and 10,134.834 billion yuan respectively,indicating that the existing basic pension system per se is unable to dissolve and deal with the impact inflicted by the longevity risks,and that the fund solvency and financial sustainability of the system will be seriously challenged.Finally,this chapter intended to find the optimal path as well as the measures for improving the system's ability to guard against longevity risks through policy simulation and scenario analysis.Chapter 6 discussed the previous international experience and its implications in mitigating longevity risks of social pension insurance.To begin with,a global perspective was adopted to summarize the international reform trend of social pension insurance for the prevention and mitigation longevity risks,considering that the link between life expectancy and pension insurance is an important innovative measure to deal with longevity risk reform in the international community.Next,this chapter also analyzed the public pension reform practice and the experience in mitigating longevity risks in four typical representative countries: Germany,Chile,Sweden,and Japan.Finally,according to the international public pension experience in mitigating longevity risks,three suggestions were put forward to improve China's ability to defend its social pension insurance system against longevity risks.Chapter7 compiled the study of China's social pension insurance policy ideas and countermeasures for dealing with longevity risks.Under the premise that the general idea,principles goal and basic of preventing and mitigating longevity risk have been clearly defined.This paper summarized the possible countermeasures on improving China's social pension insurance's ability to prevent and resolve longevity risk.Possible innovations of the thesis:(1)In this thesis,the author mainly discussed the influence of longevity risks on the sustainable financial development of our social pension system,which broadened the field and vision of study on the sustainable development of the pension program in China.Improvement of the sustainable development ability of pension insurance has been a major difficulty facing the public pension system of countries all over the world.At present,studies on the sustainable development of pension insurance were mainly developed from the perspective of aging of population,especially the perspective of fertility rate;studies focusing on longevity risks were found rare.In this thesis,the author included longevity risks into the framework of the analysis of sustainable development of pension insurance,explored the financial sustainability of the pension system of our society and proposed corresponding countermeasures and solutions.For these reasons,this thesis shall be regarded as a new and useful attempt.(2)The thesis focused on the theoretical analysis of the mechanism of longevity risks' influence on the financial scheme of the pension insurance,and the exploration of the pathway of conduction of longevity risks' influence on the financial scheme of the public pension program.In the meantime,referring to the present situation of the operation of social pension security system in our country,the author discussed the degree of influence of longevity risks on the financial sustainability of the social pension system of our country from the perspective of institutional analysis,and proposed targeted countermeasures.In the end,the author explained functions of the multi-level old-age security system in spreading and transferring longevity risks.The above-mentioned analyses were also rarely found in previous domestic studies.(3)From the empirical research,the author checked the positive correlation between a longer life expectancy and the increased pension expenditure in our country.On such a basis,with the basic old-age insurance for urban employees included into consideration,the author performed a predictive analysis of the influence of longevity risks on the revenue,expenditure and the gap between revenue and expenditure of the pension fund.Through a qualitative and quantitative analysis,the author further measured the influence of longevity risks on the balance of the social pension fund in the long run.