Research On The Income Redistribution Of Increasing Pooling Level Of Pension

The general framework of basic pension system for urban workers has been set upby now and its pooling level is rising further. The Chinese Social Insurance Law passedon October28th，2010stipulates that nationwide pooling for basic social pension shouldbe achieved gradually. A higher pooling level helps to tackle with the difficultiesconcerning the transfer over a wider area and the income redistribution of social pensionscheme will function better widely. Nevertheless，the obstacle to a higher pooling level ishow a higher pooling level influences the inter-regional income redistribution. So tospeak，how a higher pooling level influence income redistribution and its principle is thefoundation upon which the nationwide scheme is defined， social pension for workers istransferred efficiently，social security system is improved and labor force is allocatedoptimally.According to the principles of subsistence equity， labor equity and pensionredistribution，the paper analyses how proposed province-wide and nationwide poolinginfluence the pension distribution in high-and low-income region in terms of basicpension accounting methods，utility change and proper interval of basic pension payment.Meantime， the alternative schemes are evaluated and appropriateness tested.Furthermore， the paper analyses the change of income redistribution function resultingfrom a higher pooling level. Based on the Chinese reality，the pathway of nationwidepooling which is progressive income redistribution is put forward.The conclusions in the paper go as following.1. For the workers who retired before the pooling level was raised， the increasedpooling level influences less as it changes the adjustment only at different pooling levels.Because different social average wages and accounting changes the accounting of thebasic pension of the newly retired workers， the initiative value is influenced obviously.2. The utility change resulting from the higher pooling level is influenced bydifference of social average wage and it growth rate in different pooling level. If(W new Wold)(Woldgold-Wnewgnew)， a higher pooling level brings about an increaseutility; if (W new Wold)(Woldgold-Wnewgnew)， a decreased utility. If the bench line of the social average wage changes more than the income growth rate in the new and oldpooling area， the utility will increase and conversely,reduce.3.In order to judge the impact on the payment and redistribution by a higher poolinglevel，the macroeconomic appropriateness and the micro appropriateness for subsistenceequity to workers should be both taken into account. The macro criterion is that thepayment of the pension scheme is affordable and the the retired can share the economicfruits. The micro criterion is that the basic pension can make sure those basic livingneeds.4. The provincial pooling influence the basic pension and transitional pension forthe new retired workers. With the pooling level from citywide to provincewide, pensionredistribution is increased. After the price adjustment between areas，the pensiondistribution for the provincial pooling does not reflect their labor contribution and thepension welfare. That is not in favor for the retired in the high-contribution andhigh-price cities but in favor for the retired in the low-contribution and low-price cities.The current provincial pooling scheme based on nominal income reduces the gap ofprimary distribution between cities but fails to consider the price difference. That inducesanother inequity of welfare distribution.5. With the pooling level from provincewide to nationwide, pension redistribution isincreased.The nationwide pooling scheme adjusted by price index gets rid of thedifficulty in pension payment because of the dual differences of nominal pension andprice between areas. And income redistribution across areas via basic pension paymentfunctions. So the Pareto improvement and Kaldor-Hicks improvement can be achieved inthe proper intervals.6. In this paper, using the basic pension substitution rate is extended the strength ofpension redistribution model.In essence, the strength of income redistribution altersbecause personal wage focuses on efficiency and pooling wage focuses on equity. Withthe pooling level increased from county, city, province and then to nation, the strength ofpension redistribution is affected by the interpersonal，inter-city，and inter-provinceincome gap， income growth gap and price gap. Just because of the gaps, a higherpooling level can achieve the greater income redistribution. When the difference ofinter-area primary distribution and price converges to zero, the strength of redistribution converges to zero. The strength is characteristic of auto-convergence.7. According to the redistribution of inter-area welfare resulted from nationwidepooling; the welfare compensation is calculated during the policy transition. So thequanta of interest adjustment between areas are involved in achieving national pooling.Based on that, the government fiscal responsibility is defined to coordinate inter-areainterests. From2012to2050，the scheme will evolve from provincial pooling and stagedpayment to nationwide pooling and hence the strength of income redistribution isincrease gradually.