Dynamic Mortality Rate,Retirement Age Rise And The Pension Wealth

The Chinese government is facing severe pension gap issues due to the increasing life expectancy of the Chinese population.Raising the retirement age seems to be the only solution that must be implemented soon or later.However,pension reform proposals receive large opposition from the public.Delayed retirement means that the pension age of the insured will be postponed.When the life expectancy remains unchanged and the payment period of retirees increases,the pension receiving period decreases.Although the balance of individual accounts can be inherited,it is intuitively understood that delaying retirement may reduce the pension wealth of insured individuals.This is the reason why the deferred retirement policy is questioned or even opposed by the majority of the people at the current stage.Therefore,in the context of extended life expectancy,it is particularly important to analyze the mathematical relationship between delayed retirement and employee pension wealth from an actuarial perspective.This thesis aims to explore the impact of raising the retirement age,based on the actuarial valuations of individuals’ retirement benefits.To provide a comprehensive analysis,we include a large number of scenarios that take into account different sexes,different workplace entry ages,and retirement ages.Our numerical results suggest that retirement benefits based on the existing retirement age are rather insufficient,one can significantly improve their overall financial adequacy by choosing the optimal retirement age.To construct a realistic study,we adopt stochastic mortality models instead of a static mortality table.We demonstrate a significant miscalculation exists in the actuarial value of one’s retirement benefits if the longevity risk is ignored.In addition,we separately examine the Defined Benefit Pay-As-You-Go plan(DB PAYGO)and the Notional Defined Contribution(NDC)plan in the first pillar of China’s pension system.The differences in the designs of each plan lead to different wealth accumulation patterns.Our analysis demonstrates that individuals are beneficial if they are given the flexibility to choose different retirement dates for different plans.In addition,we include a discussion on how the early retirement penalty and the late retirement reward can be established to alter one’s retirement decisions.Through our analysis,we found that the NDC design,in its current form,is too generous that its sustainability is highly questionable.Simply raising the retirement age does not solve the pension crisis,and according to our results,may even increase the financial burden faced by the Chinese government.Therefore,it is necessary to reevaluate the pension design based on rigorous actuarial valuations.