Research Of Longevity Risk On Basic Endowment Insurance Fund

Life expectancy improving is a good thing for human beings, but it can also put individual, family, corporations and government at longevity risk. "Decisions in Reforming Basic Endowment Insurance System", which was issued by the state council in June 1995, decided to change the endowment insurance financing way, and established a new pension insurance system pattern of combining mutual assistance programs with personal accounts. On account of life expectancy improving and imperfection of system design, our endowment insurance system (EIS, hereafter), is at longevity risk. The research on longevity risk of EIS will contribute to know the increased pension caused by the improved life expectancy; therefore the government will know how much fund they need to prepare for the longevity risk.The study is conducted on the tendency of life expectancy improving and reality of imperfection of system design. This paper deals with the problem of longevity risk on EIS by using the theories of Risk Management, Social Policy Sciences and Actuarial Sciences as analysis tools. Firstly, after reviewing the design of EIS, the study defines the concept of longevity risk of EIS and analyzes the risk factor. Secondly, Under the hypothesis that Social Pooling Accounts Fund (SPAF) and Personal Account Fund (PAF) are of mutual independence, this paper calculate the longevity of SPAF and PAF. It founds out that the benefit formulae of PAF can withstand longevity risk to some extent, but when the life expectancy further extended, there will be pension holes, and the more life expectancy extended, the bigger holes will be. The longevity risk of SPAF is related with the System Maintenance Rate (SMR), the higher SMR is, the bigger pension holes will be. Besides, the longevity risk of women is bigger than men. Thirdly, this paper analyzes the relation of pension adjustment and longevity risk. It turns out that when the SMR increases 0.1% each year and the growth rate of pension fell from 10% each year to 8% in 2015 and to 4% in the next 15 years, then the longevity risk will decrease 1170,000 yuan in 2015, and decrease 36.6 billion yuan in 2030. Lastly, solutions to dissolve the longevity risk and improve the system are given, including estimating the longevity risk of EIS scientifically, putting off the legal retirement age and establishing the pension adjustment mechanism...