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Sustainability 2015, 7(8), 10876-10894; doi:10.3390/su70810876

Reforming China’s Pension Scheme for Urban Workers: Liquidity Gap and Policies’ Effects Forecasting

1
Department of Finance, School of Economics and Management, Southeast University, Nanjing 210008, China
2
Carey School of Business, Johns Hopkins University, Baltimore, MD 21202, USA
*
Author to whom correspondence should be addressed.
Academic Editor: Weidong Huang
Received: 4 May 2015 / Revised: 30 July 2015 / Accepted: 3 August 2015 / Published: 11 August 2015
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Abstract

This study forecasts the liquidity gap in China’s pension scheme for urban workers in the context of an ageing population and the possible effects of recent governmental policies by constructing a basic pension model, including “old people”, “middle people” and “new people” and a simulation method. We find, firstly, that China’s liquidity gap of pension will reach its peak of approximately 13.11 trillion yuan in 2038. Subsequently, this gap will gradually decrease with growth in the mortality rate. Secondly, reasonable intervals for the replacement and contribution rates should be set at [0.417, 0.604] and [0.189, 0.262], respectively, to sustain China’s pension system. Thirdly, compared to increasing fiscal subsidies, an income doubling plan, raising the contribution rate, lowering the replacement rate and delaying the retirement age can significantly reduce the liquidity gap, although the policy costs are relatively high. A policy permitting families to have two children will increase the rate of reduction of the liquidity gap, but it cannot effectively narrow the gap at the peak moment. View Full-Text
Keywords: China’s pension system; liquidity gap; reasonable interval; policy effect forecasting China’s pension system; liquidity gap; reasonable interval; policy effect forecasting
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Liu, X.; Zhang, Y.; Fang, L.; Li, Y.; Pan, W. Reforming China’s Pension Scheme for Urban Workers: Liquidity Gap and Policies’ Effects Forecasting. Sustainability 2015, 7, 10876-10894.

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