Study On Insurance Level Of The New Rural Social Pension Program In Fujian Province

Ensuring the elderly to be supported properly is the good tradition of Chinese culture as well as the constitutional guarantees of fundamental rights of the citizens. The population aging and the weakening security functions coming from the family and land endowment make the old-age security problem in China’s rural areas a prominent livelihood issue. The implementation of rural social pension program and the construction of social security system is an inevitable choice in the face of this challenge and it is the approach for the government to improve the livelihood of the people. The fundamental reason for the failure of the Old Rural Social Pension Program, a pilot program starting in1986, lies in the defects of the institutional design for pension benefits and payments. Started as a pilot in September2009, the New Rural Social Pension Program (NRPP) has restructured the system elements. Through the formation of new pension insurance benefits payments with the payment mechanism of the relationship, it will become the basis of the rural pension system. The sustainability and healthy operation of the new system, however, depends on many factors, including the rural residents’payment ability and willingness to participate, the government’s financial ability, as well as the payments mechanism and an appropriate level of insurance.By literature review and logical reasoning, this paper revealed the formation mechanism of the rural social pension benefits and the factors constraining the level of the pension payments. By taking Fujian Province as example and based on the analysis of the existing old-age security level of rural residents, the reality of the security level provided by the NRPP, and the rural residents’ expectation from the program, this paper put forward three benefit level programs about the NRPP. It also discussed the main constraints and implementation costs.The answers to the above four issues form the conclusion of this paper.(1) From the perspective of formation mechanism of the NRPP benefits, whether it is pay-as-you-go system or full funding system, or a mixed system of the both, pension growth is mainly due to growth of employment population and improvement of labor productivity. In various pension payments modes, the pension benefit level is affected by various factors, while the decisive factors are always the same, including level of economic development, fund raising, and population structure. Due to the implementation of family planning policy, the future population structure will change dramatically; population aging will be more serious in the near future. No matter in terms of the relative increase in the number of employed population (population structure adjustments), or from the perspective of improving labor productivity, the changes in the population is a crucial factor. The moderate insurance level of the NRPP depends not only on some financial inputs from the government, but also on a certain level of insurance fee that residents pay.(2) Through the household survey, we look into the existing level of old-age security among rural residents, the real insurance level of the NRPP, as well as and the rural residents’ expected insurance level from the program. The results show that the-rural residents’ overall replacement rate of the existing old-age security level is about50%. Considering that the establishment and improvement of the NRPP is a gradual process, this paper, by taking Fujian Province and the typical regions as an example and from the perspectives of the living needs of rural elderly residents and the income replacement, estimates the level of insurance payment based on basic survival needs, basic needs of life and income replacement needs. The achievement of the three insurance levels depends on the support from government finance and the rural residents’ payment capacity and payment willingness.(3) In view of the payment capacity, rural residents’ individual maximum payment capacity in Fujian is higher than the highest pay level of the NRPP set by provincial government; the actual premium payment willingness is lower than the maximum fee capacity, but much higher than the minimum payment level. However, due to a number of reasons including the lack of incentives and doubts about this new system, more than90percent of the insured person chooses the lowest pension fee to participate. Empirical results show that the factors influencing the behavior of participation in the NRPP are the insured person’s gender, educational level, household per capita arable land, elderly living arrangement mode in family, the acquaintance about the NRPP, regional economic development level, and the pension fee level of the major cadres of village. Among these factors, the family arable land per capita, the knowledge about the NRPP, regional economic development level and the pay grade of the major cadres of village are positively correlated with insurance rate, years of person’s education is negatively correlated with insurance rate, and male participation rates significantly higher than women. The families with elderly have significantly higher participation rates than those without elderly, and the family elderly who has higher dependence on the basic pension has the higher rate of participation.(4) Based on. strict actuarial assumptions, the PROST actuarial simulation results show that in Fujian Province in general and in the three typical counties in particular, the Moderate Program is the choice that government finances can withstand. The Moderate Program can be elaborated as follows. The basic pension replacement rate maintain the existing level during base period (2010) to2015, the basic pension substitution rate is increased gradually from the base period level to the level to meet basic needs for survival from2015to2020, and the replacement rate goes on to be increased gradually to meet the basic needs of life from2020to2025. During the period from2026to2050, level of replacement rate maintains the same. As to the ratio of the basic pension to the total financial year expenditures, we can see a development trend that increased first, and then dropped, with the peak arriving in2040. The ratios of basic pension expense to total financial expenditure of Fujian Province, Jinjiang City, Lianjiang and Shaowu City are8.35%,14.09%,17.16%and13.84%respectively. In view of the premium payment capacity of the rural residents in Fujian province and the three areas, the level of8%contribution rate is within the affordable range. Therefore, the upper limit of the payment incentive shall be set at the level of the8%contribution rate from the perspective of fairness and efficiency.Overall, this paper analyses the mechanism formation and constraint factors of insurance benefits by overlapping generation model. There are some contributions to current literature from this paper. Firstly, the paper develops a theoretical framework of formation mechanism of the NRPP benefits, which has not been paid adequate attention in the literature. Secondly, this paper explores the existing old-age security level of rural residents, the role of the security level provided by the NRPP and the rural residents’expectation from the program, and puts forward three benefit level programs about the NRPP. Thirdly, in view of the fact that there are no consistent conclusion about the factors that affect the rural residents’insured behavior in the existing literature, this paper takes participation behavior of Fujian rural residents in the NRPP to implement empirical analysis and draws helpful conclusions. Finally, the paper uses the actuarial simulation analysis to determine a viable option for a moderate insurance level and fee level in the NRPP in Fujian. It will lay a decision-making foundation for Fujian in the policy adjustment in the NRPP and provide useful insights for the improvement of the NRPP system in other regions.