Pension Insurance System The Basis Of Innovative Financial Instruments

As the world's population ages over the next few decades, Chinese government has shifted from Pay-As-You-Go pension system to Partially Funded. However, it is so worried about the income level of the current pension fund was very low. A challenge facing the government is to keep the value and increment.Based upon the analysis of the pension theory, this paper summarize the transformation of current pension system through the studies on the latest prescribe, and then some suggestion is made by finding current problems. After the evaluation on the investment and operation conditions, the paper explored some application of financial instrument innovation on how to keep the value and increment of pension fund.This paper has attempted to show that:1. The given replacement ration of the basic endowment insurance is on the high side. High contribution arose from the high replacement ration has limited the development of the enterprise supplementary pension plan.2. Inflation risk is a critical risk, but there is another risk which is also critical, the risk of the decline in the retirees' relative standard of living, this kind of risk is easily to be ignored, and the per captia real consumption indexed mechanism can help people avoid it.3. To keep the value and increment of the pension fund, the basic principle is safety, and the stock index option could offer it by acquiring the potential return without jeopardizing the minimum level of benefits.4. The issue of the indexed-bonds by government could make retirees avoid the risk of the decline in relative standard of living effectively, and financial intermediates could utilize it to replicate insurance annuity.