Study Of The Shanghai Urban Worker Pension System-The Aging Of The Population, Reform Options And Numerical Simulation

The aging of the population caused by the decline in the birth rate and higher life expectancy makes dependency ratio of Shanghai urban workers pension system rise, and as a result, the pension funds is unsustainable. Funds in personal pension accounts are used to fill the pension gap of the pay-as-you-go pillar. Therefore the existing Shanghai workers pension system is basically a PAYG plan.This paper analyzes the demographic, labor market and economic development in the next 30 years in Shanghai, and suggests three options for reform. The first option is to increase the statutory retirement age. Early effective retirement should be punished, so that the effective retirement age can be raised and then the statutory retirement age. The article analyzes the international experience of raising the retirement age and the feasibility of the implementation in Shanghai. The second option is to earn higher rates of return from diversified investments. The personal pension accounts should take centralized fund management. The funds should invest in a fully diversified international portfolio, part of the funds may be invested in the international market or even private equity investment fund access to a higher rate of return on investment. Risk management should adopt limited regulation. Finally, the reduction of taxes should lead to development of enterprise annuity. It will become an important complement of the public pension system and offer greater retirement income security.We developed a simulation model with five modules. With the demographic and labor market and insurance assumptions in the next 30 years we calculated the dependency ratio of the system and simulated development of the average pension benefit after the increase of the retirement age. In simulation of personal pension accounts the concept of a standard person was introduced. The replacement rate of the personal account of an average person was also simulated assuming the real return of 4% and 6%. Add the two rate together we get the development of the sum replacement rate in the future.