Article China Finance,No. 19-20, 2020.
I have attended several meetings on the old-age security system in the past. In most cases, I have analyzed why the current system is unsustainable and needs reform from the perspective of economics. In fact, it is not easy for these economic analyses to truly reach a comprehensive consensus, no matter when there is always controversy. Because some people will look at it from a long-term perspective, some people will look at it from a short-term perspective, some people will look at the feasibility of different departments, and some people will look at it from different interest groups. Complete reunification is not easy. Assuming that these analyses have generally reached a consensus, what do we need to do? I have the following considerations.
It is very important to calculate the pension gap and give play to the incentive role of the pension payment system.
In response to the severe challenges brought by aging, relevant calculations are very important. First, the future pension gap needs to be calculated more accurately. This calculation depends on relevant assumptions, such as future life expectancy per capita. These assumptions can also be a distribution, the probability distribution of the vertices and sides of the normal distribution, plus several possible policy effects, and the conclusion of future analysis will be an interval. Strictly speaking, this method should be measured by dynamic system simulation, not actuarial in the typical sense.
Second, build an incentive mechanism for enterprises and individuals. The problem now is that the downward pressure of the economy and the general tax reduction policy have reduced the pension contribution rate this year. It stands to reason that under the aging situation, the pension gap is expanding, and it is high time to increase the contribution rate and increase income. The reason for reducing the rate is that under the current system, pension can not be used as an enterprise's reward for workers; As an individual, it cannot reflect the incentive mechanism of labor remuneration. The decline of incentive effect leads to the decline of productivity, which is manifested in the decline of enterprise vitality. Although the pension gap is widening and some provinces have begun to have "holes", it is still necessary to reduce the pension contribution rate. In other words, when designing the mechanism, we should consider the important role of pension in the vitality and incentive of enterprises.
Increase the proportion of personal accounts in the three pillars of pension.
The proportion of personal account in the three pillars of pension should be greatly increased. Give full play to the incentive function of personal account, one is to encourage productivity, and the other is to encourage individual contributions to avoid the moral hazard of "eating the same pot of rice" under the traditional planned economy system in China. The definition, division and proportional relationship of the three pillars are very important. It may be noted here that China's official definition of "three pillars" is different from the international understanding (such as the definitions from the World Bank and OECD), which is more likely to cause international misunderstanding.
Dealing with intergenerational differences by historical restoration method to realize the transformation of pension system
We should consider using the past experience of housing reform and adopting the method of historical restoration to deal with the problem of "vacancy" in personal accounts of people of different times and jobs in the past. There is an international consensus on what kind of future system is good. However, the old-age security system is intergenerational, and it is difficult to transition from one system to another.
In the past, the elderly, middle-aged people and people of different ages in China were under different systems, which caused practical difficulties in the transition of the system of expanding individual accounts. Some experience of housing reform is to calculate a score according to working years and positions, which is equivalent to the purchasing power of housing in the past to some extent. Through conversion, a considerable number of people who have worked for decades can get "housing reform housing" at low prices or free of charge. This idea is also close to the Nominal Personal Account (NDC) implemented in several European countries. If you don't use history to convert personal accounts, or you can't do this, there will be problems of fairness and rationality in expanding the proportion of personal accounts, which will naturally lead many people to oppose the implementation of expanding personal accounts.
Another special situation in China is that farmers need special treatment when implementing "nominal personal accounts". All along, the policy of China is to implement land contracting rights and homestead management for farmers who have not entered the city, plus subsistence allowances. If a farmer goes to work in the city after farming for several years and never returns to his hometown, he can start to calculate the "nominal personal account" from the time he starts to work. Doing so can prevent migrant workers from "occupying the road at both ends", and the Ministry of Finance has been considering this issue.
What needs to be clear is that all expenses paid by enterprises and individuals are included in personal accounts.
The relationship between pension company contributions and personal accounts should be rearranged. In the past, enterprises paid 20% and individuals paid 8%. 20% of enterprises really can't survive, so they reduced it, and now it is reduced to 16%. In theory, 8% is turned over to personal accounts, but many local pension systems are in deficit, and 8% cannot keep real accounts. Personal account belongs to an individual in name only, and it is often misappropriated to fill the gap of pension expenditure in the same period in practice, which is called "empty account". And the transparency of personal accounts is not high.
20% (now 16%) of enterprise contributions are not paid into personal accounts, which only takes care of the pay-as-you-go demand and obviously ignores the incentive effect on productivity. The reasons are not only the lack of understanding of policy tools, but also the deviation of departmental positions. Policy design is a sign of laziness. I think this is relatively simple. In fact, it greatly reduces the incentive effect in the pension system, resulting in opacity and reducing everyone's confidence in the pension system. Therefore, it should be clear that both enterprise contributions and individual contributions should be credited to personal accounts, and the ratio of the two should be equal.
Transfer state-owned capital to personal account.
If the personal account has been restored and approved, the next step should be to allocate state-owned capital to make a personal account. There are a large number of state-owned enterprises and assets in China, and the central government has decided to allocate some shares of state-owned enterprises to enrich pensions. It's not easy to make up your mind about this matter. Regrettably, at the beginning of this century, when the country almost made up its mind to transfer state-owned capital to enrich the social security fund, it failed because of a little chance. The decision to allocate 10% of state-owned capital first is correct and pragmatic. It is said that there are still many problems in the distribution process. In terms of macro-aggregate, we need to calculate the accounts clearly to know how much state-owned capital is needed to solve this problem. From the microscopic point of view, the allocation of state-owned capital should not only solve the small gap in overall planning, but also consider filling the gap in the "nominal personal account" to make the future personal account more credible and inspiring. This distribution ratio is definitely indispensable, and 10% cannot be solved. In addition, the transfer of state-owned capital to enrich the social security fund and make personal accounts also involves the reform of mixed ownership of state-owned enterprises.
Solve the problem of labor mobility by paying n to 1
Now the traffic is developed, the labor mobility is becoming more and more common, and migrant workers have worked in many parts of the city. Pension management used to be coordinated at the provincial level, and some provinces were coordinated at the municipal level. According to the method put forward a few years ago, the accumulated funds raised in advance in the pension system should be mobile. In fact, compared with improving the portability of pensions, N pairs of 1 accounts are easier to pay. When an employee has worked in n places, when he retires, the pension managers in different areas will pay the retirees the retirement funds at this stage according to his contribution during his working years, including the return on investment and operation (transparency is required). From the financial point of view, due to the development of IT technology, N payment 1 account is quite easy and feasible.
This is different from the funds taken by wage earners and women workers in Dongguan at that time, because only personal accounts paid by pensions were allowed to be taken away at that time, and the bulk was still the co-ordination part handed over by the company. In fact, these two parts should be included in the personal account through the calculation method of historical restoration, but there is no need to carry them. There are many problems in portability operation, which are prone to information asymmetry and make employees suffer personally.
In addition, whether the pre-accumulated pension in the future is the enterprise responsible for maintaining and increasing the value; There are some competitive pressures in maintaining value, increasing value and transparency, which are also issues that need to be considered. If several institutions maintain and increase their value, there will be competition and improvement among them. Some institutions will do well, while others will do badly. If there is only one enterprise with poor management or corruption, it will basically not be exposed and no one can test it. For example, there is a problem of low rate of return. He said that he has done a good job and there is nothing you can do. If there are several institutions in operation, it is necessary to solve the long-term payment problem of specific personal pensions in the future, and the problem caused by labor mobility can also be solved by the way of future N-turn 1 payment.
Achieve a high degree of transparency in pensions.
In order to make the pension system more effective, especially the incentive mechanism of payment, it is necessary to achieve comprehensive transparency. Everyone can query personal pension accounts clearly and conveniently through the Internet. If you have worked in several places, you can also clearly check the pension account balance and business return in several places. At the same time, it can also give the insured employees the right to choose which institution to entrust to manage the pension fund, and the return can be seen at any time. As we all know, with the development of science and technology, we can even see the changes of several decimal places, that is, we can see the value-added situation. Unlike before, the cost of querying this information will be higher. But to be honest, pensions are long-term and don't need to see the return on investment in a very timely manner.
Carefully design the proportion of overall account in the three pillars of pension.
In the overall planning part, we should carefully design the proportion and coverage of overall planning accounts in the three pillars according to the current situation in China. The overall proportion needs to be considered comprehensively, and it should be considered in a unified way with the second pillar and the third pillar. Moreover, the overall planning part also involves the relationship between the central and local finances. In terms of overall planning, there are currently subsistence allowances in rural areas and overall pensions for urban design. In fact, there are many international policy tools to achieve overall planning, including policies to support the bottom line of personal accounts.
Adequate tax incentives should be given to the second and third pillars.
In the second and third pillar plans, there is a general feeling that China's tax incentives are insufficient. China's pension involves a large number of elderly people. This system is very important for the long-term stability of the country and the well-being of the people. Since fiscal and taxation policies should support the establishment of a reasonable system, it is necessary to invest enough incentive mechanisms and make reasonable tax arrangements with reference to various international experiences. For different pillars (even sub-projects within pillars), tax incentives should have different designs.
Establish a reasonable pre-funded pension operation system.
A reasonable pension management system must be established to match the development of the capital market. Although the capital market fluctuates, especially in emerging markets, when the bubble bursts, it will bring great questions to everyone. Is it worthwhile to put the accumulated pension into the capital market? But from a longer historical stage, the great possibility of maintaining and increasing value still depends on the capital market. On the one hand, pension investment is of great benefit to the development of capital market; On the other hand, pension investment spans decades, and in the long run, this return is very important for the sustainability of the pension system. Without this return, the pension contribution rate needs to be greatly improved. According to different hypothetical scenarios, we can calculate the supporting effect of investment return on pension system, but there are also risks, so we need to design a risk sharing mechanism. Therefore, it is very important to make good use of the capital market and make some institutional arrangements, which is also very important for pension reform and the prosperity of the whole country. In addition, the capital market provides some tools, which are helpful to use capital market tools to fill and supplement personal accounts with current state-owned capital on the basis of reducing and calculating "nominal personal accounts".
(This article is based on the audio recording of the author's speech at the international symposium on "Pension Reform: International Experience and China's Program" held in Chongqing on February 3, 20 19, with the title added by the editor. )
(Editor Zhao Xuefang)