Assessment of the Financial Sustainability of China’s New Rural Pension Plan: Does the Demographic Policy Reform Matter?

• Main Authors: Huan Wang, Jianyuan Huang, Shuangyue Sun
• Format: Article
• Language: English
• Published: MDPI AG 2019-09-01
• Series: Sustainability
• Subjects: rural pension plan; financial sustainability; demographic policy reform; actuarial analysis; sensitivity analysis
• Online Access: https://www.mdpi.com/2071-1050/11/18/5110

Rural China is experiencing a rapid aging process caused by low fertility and large-scale rural-to-urban migration, which will place an increasing payment burden on the rural pension plan. To allay the negative impact of the aging transition, China has recently carried out a demographic policy reform, replacing the famous one-child policy with the two-child policy. This paper evaluates the impacts of the demographic policy reform on the financial sustainability of China’s New Rural Pension Plan (NRPP). By applying the cohort component population projection method and building actuarial models, the solvency sustainability of the NRPP between 2019 and 2080 is estimated under six demographic policy scenarios, followed by sensitivity analysis. The simulation results show that under the one-child policy, the current and the accumulated pension fund would run deficits in 2030 and 2042, and then the pension deficits would expand rapidly. The two-child policy would relieve the pension pressure moderately before 2075, but thereafter, the pension deficits would become much worse. Sensitivity analysis of a series of demographics and pension parameters on the financial sustainability of the NRPP are displayed. On average, the long-term pension gap may not be avoided for the NRPP, regardless of raising the contribution rate, delaying the retirement age, or encouraging people to have more children.