China's Pension System Transition Study

Being faced up with the population aging process, China has difficulty in paying its pensions. To cope with the payment crisis, the funding pattern of old age insurance begins to turn from the traditional pay-as-you-go pattern to the partial provident funding pattern. Now China's old age insurance funds includes socially raised funds and individual account funds.The transition of funding pattern poses challenges to the old age insurance system. The problem of "hidden debts" makes the individual account empty. To increase the income of old age insurance and make up the "empty account", many proposals have been raised, such as raising the rate of old age insurance, turning some into State properties, extending the retirement age, expanding old age insurance coverage. The author finds these measures incomplete and raises constructive, practical and operational suggestions with regard to solve the problems of transition. The major points of view and suggestions are as the follow:Firstly, protecting the individual account from risk. Individual account funds should be separated from socially raised funds in terms of management. In addition, individual account funds could be loaned to socially raised account in order to solve the lack of old age insurance funds.Secondly, tackling the hidden debt problem of old age insurance with readjusting the structure of financial expenditure. The government can complete the old age insurance funds through compressing the administration expenditure.Thirdly, reducing the increasing rate of fee of old age insurance at the same time of extending the retirement age.Finally, introducing a new system of old age insurance. The scheme for the new system includes three factors: the basic old age insurance provided by socially raised account funds, the compulsory individual old age insurance provided by individual account funds and individual savings deposit-like insurance. The introduction of the new system could expend old age insurance coverage.