The Study On Financial Sustainability Of Public Pension Funds In Jilin Province

As the trend of the aging of the population in the world, the Public Pension system highlights the growing importance on social insurance. The Social insurance business does not only impact the vital interests of the individuals, and also impact the social and economic long-term stability of an area. Its reform and development have caught more and more people's attention. The Public Pension Funds is the material basis for the operation of social insurance system. If there is no financially sustainable development on Pension Funds, the social security system would not play its role.Jilin Province is one of the famous old industrial bases in China, under the dual pressure of history and reality, its financial sustainability of the pension funds is facing severe challenges. Based on this background, I choose to study on the public pension system of Jilin Province, taking quantitative methods to analysis the financial sustainability of the public pension funds and provide reference for further reform and restructuring.This paper is composed of five chapters:Chapter 1 summarizes a brief background and significance of this topic, then sort out the relevant studies.Chapter 2 outlines the Public pension system of Jilin. The first part mainly introduces the concepts of public pension. Pension insurance is a form of government guarantee through legal and institutional arrangements, so that the older workers who withdraw from the labor forces would live at the basic livelihood. The second part introduces the basic framework of Jilin's public pension system. The third part analyzes the impact of the aging on sustainability of pension funds in Jilin Province.Chapter III mainly analyzes the problem of Implicit Pension Debts (IPD) in Jilin. The first part introduces the origin of IPD. IPD Refers to the pension commitments for workers and employees under the pay-as-you-go insurance system. It equals to the current value of their pension rights that the government must pay When the raising method changes. To research IPD we should divide workers into three parts: "Old-age Person", "Middle-age Person" and "New Person". "Old-age Person" did not accumulate pension funds when he was working, and "Middle-age Person" did not accumulate before the system reform. Therefore, the obligations to "Old-age Person" and "Middle-age Person" compose the IPD which would be asked for paying in the future. In 1997, the Chinese public pension system changed from pay-as-you-go to partly accumulation, so that the problem of IPD came out. Due to some historical reasons, Jilin has calculated a large-scale IPD. There will be a heavy pressure for the government to pay it off in the next few decades. Then, on the basis of existing studies, some actuarial models would be made to calculate the IPD scale. The results show that, in 2005, the IPD scale of Jilin Province was as high as 312.812 billion yuan. It is about 1.06 times as the annual GDP and 15 times as the revenue. The large scale of IPD will bring tremendous financial pressure to the government in the future.Chapter IV mainly analyzes the balance of Public Pension Funds. First it introduces status and causes of the income and expenditure of Jilin province. Jilin is famous for the old industrial history. There are a lot of state-owned enterprises, low efficiency companies, numbers of retired and laid-off workers. Therefore, the Public Pension Funds here has been imbalance for a long time. On one hand, the Pension Funds is lack of sources; on the other hand, the demand for pension is increasing .So that the balance of Pension funds and its trend of sustainable development of Jilin Province are worrying. Then, some models would be established on the base of the relative studies and the situation of Jilin Province. The basic idea is like this: Multiply the total amount of annual Funds'income with the rate of return on investments to achieve the ultimate end goal and added value; Multiply the total amount of annual Funds'payment with the rate of return on investments to achieve the ultimate end goal and added value; at last, compare the total amount of income with payment, and then judge whether the Public Pension Funds is balance. Then I set the parameters base on the actual situation of Jilin and put them into those actuarial models. Finally I calculate the income and payment scale from 2005 to 2030.The results showed that: the growth rate of pension income is lower than payment, so that the Pension Funds would be in a deficit situation in less than 10 years. Subsequently the funds gap would expand bigger and bigger. If assuming that the investment return on Pension Funds maintains the same level of 5%, the Pension Funds'accumulation will be negative by the year about 2020, and the shortfall will reach about 332.468 billion yuan in 2030.Chapter V gives a brief summary on the base of the previous analysis and put forward some comments to the future policy. The empirical analysis in Chapter III and IV show that the sustainability of Public Pension Funds in Jilin Province is worrying. Because of some historical reasons, The Public Pension has accumulated a large number of IPD, the total size is over one trillion yuan. It is not only conducive to the development of the insurance business, but also brings a heavy burden on public finances; on the other hand, the imbalance situation of Pension Funds'income and payment keeps worsening. The Pension Funds would be in a deficit situation in less than 10 years, and the shortfall would be increasing more and more. It will pose a serious threat to the sustainable development of Public Pension system. Therefore, the relevant departments must take early measures to delay or postpone the Public Pension funds financial crisis occurring.