Pension Privatization Reform: International Experiences And China's Policy Selection

Under the challenge of worldwide population aging, the public pension systems in many countries are facing fiscal crisis. Many countries' government are carrying out many kinds of measures to reform the present public pension system in order to release the fiscal pressure. Among which the prominent point is to re-identify the role of government and market playing in bearing the old-age insurance responsibilities, and to extend the role of private sectors in providing pension plans. That is what we referred to as "pension privatization reform".Pension privatization reform could be illustrated from several aspects: First, it means privatization of provision sectors, i.e. more responsibilities of providing pension plans are transferred from government to private sectors. Private sectors could take all the responsibilities of providing pension plans or part of them. Secondly, it means privatization of pension management. This involves much participation of private sectors in collection, management of pension contributions and payment of pension benefits in varying degree. Thirdly, it means privatization of pension management fees. Costs of pension management are bearing more by individuals or employers rather than by taxation or social insurance contributions.We began to implement pension system reform to adapt to market economic system since 1990s. After 20 years' effort, the framework of social old-age insurance has been established, but the present public pension supply can not meet the demand of all citizens in terms of coverage and fund. In terms of coverage. The employees covered by social old-age insurance system account for 45.1% of total employees, 31.1% of city population and 13.4% of the whole country's population. In terms of fund, demand for social old-age insurance is far more than supply of fund and the public pension system faces difficulty in sustainable development. In terms of level of benefit of public pension, financial support obtained by citizens from public pension system is very low and it means public pension benefit can not guarantee citizens' basic consumption after retirement.The conflict between supply and demand of social old-age insurance arises mainly from fund constraint. Under the present financing system it is very difficult to enlarge the coverage of public pension system or increase pension benefit, and the sustainable development of public pension system is facing serious fiscal pressure. In contrast, the household saving in city areas in China has been rising since 1990s, and the growth rate of saving obviously exceeds that of consumption and even revenues. The rapid increase of household saving reflects individuals' precaution motives for uncertainty of income and expenditures in the future and it also reflects the weakness and insufficiency of social insurance. Under the reality of insufficient public pension fund and large household saving, it is useful to discuss to limit government's role and to extend private sectors' role in bearing the responsibilities of old-age insurance and it is also valuable to propose pension system innovation.This dissertation clarifies some basic theories of pension privatization reform and discusses its application to system design. The dissertation illustrates the meaning of pension privatization reform, and then analyzes and generalizes the pension privatization practices and experiences in some typical countries, and then analyzes the conditions of pension privatization reform in China, and at last it proposes some suggestions on pension system design.The major part of dissertation can be divided into five chapters.Chapter 2 is a theoretical analysis on pension privatization reform. In this chapter we argue that pension system can be divided into two broad categories in terms of provider: public pension with government being provider and supplementary pension with private sectors being providers. We simply analyzed the running model of these two kinds of pension plans and proposed that the nature of pension privatization reform is to re-identify the role of government and market in pension provision. The trend in this respect is to narrow government's role and extend market's role. And the major contents and characteristics of pension privatization are discussed too in this chapter. In general, pension privatization reform can be explained as follow: first, it means privatization of public pension system, including: pay-as-you-go system being replaced by fully-funded or partially-funded system, defined benefit system being replaced by defined contribution system, decreasing public pension benefit etc. secondly, it means privatization of dual pension system, i.e. the role of government in pension provision could be limited and that of private sectors could be extended and government could offer private pension plans more incentive systems or preferential policies.Chapter 3 and 4 introduce present situation and reform trend of pension privatization in some typical countries and generalize experiences useful to us. The pension system reform in the world can be divided into two categories: reform in developed countries and in developing countries. In Chapter 3 we analyzed the common characteristics of pension privatization reform in developed countries and found out experiences that we can learn and problems that we should be prudent of. And in Chapter 4 we select some typical developing countries in pension privatization reform and analyzed the major reform measures and what we can learn.Chapter 5 focuses on the conditions of pension privatization reform in China. The first section states the difficult situation that China's pension system is facing under the challenge of population aging. The second section shows the conflict between demand and supply of pension plans and point out our pension system is facing crisis of sustainable development due to insufficient fund supply. The third section puts emphasis on the analysis of household saving and our empirical research shows that high household saving provides rooms for pension privatization reform. The last section believes that pension privatization reform is available in China through the impact analysis of pension privatization on public finance, capital market and economic growth.Chapter 6 put forward suggestions on system design of pension privatization in China. We believe that the key point of pension privatization lies in the rational identification of the role of government and market in pension provision. So in the first section we propose the rational degree and targeting of public pension plans. And in the second section we argue that private saving pension plans based on individual accounts should be enlarged and we propose some system innovation suggests as well. In the last section we state that government should design more incentive motives for the development of supplementary pension plans. The comparative method and normative and positive analysis are employed in this dissertation. The creative points include analysis of conditions of pension privatization in China and identification of rational degree of public pension plans etc.