Stochastically Assessing the Financial Sustainability of Individual Accounts in the Urban Enterprise Employees’ Pension Plan in China

Abstract

Various countries are paying increasing attention to the long-term financial sustainability of pension plans, and the self-balancing ability of such plans is an important index to measure their long-term financial sustainability. This paper explores the financial self-balancing ability of the individual accounts of China’s urban enterprise employees’ pension plan (UEEPPI). In the particularly serious scenario that the individual accounts’ previous accumulated funds are zero, the bookkeeping rate and the investment return rate are considered as stochastic variables in the in-depth analysis of the self-balancing ability of individual accounts, and the effects of two different bookkeeping behaviors are compared. The results indicate that if the government adopts the fixed bookkeeping rate, the individual accounts have an excellent self-balancing ability. If the government adopts a stochastic bookkeeping rate, it can further improve the self-balancing ability of individual accounts. Sensitivity analysis finds that the increase in the wage growth rate can improve the self-balancing ability of individual accounts, but the impact of contribution rate of individual accounts and the contribution wages of recruits create uncertainty. Based on the conclusions, some policy implications are proposed.