Life Expectancy and Retirement Age

Yao Haixiang; Wei Jiahui; Ma Qinghua

doi:doi:10.16538/j.cnki.jfe.2018.04.005

Summary

The extension of life has exerted more and more pressure on the Chinese pension industry. In order to alleviate this pressure, more and more experts and scholars put forward policy recommendations for postponing retirement. At present, the specific reform scheme of the retirement age in China has not yet been introduced, and there are still some disputes on how to carry out the policy of postponing retirement. However, from the perspective of international experience, some countries or regions adjust retirement age directly or indirectly according to the life expectancy of population. This practice is important reference for our country. Whether China should build the adjustment mechanism of life expectancy and retirement age has very high research value. Under this background, this paper investigates the feasibility of establishing the linkage mechanism of life expectancy and retirement age from a perspective of a social planner through mathematical deduction and theoretical research, and further explores the adjustment formula between them. It hopes that this research can enrich and develop the application of overlapping generations model to the pension problem, and give relevant reference to government departments regarding the issue of postponing retirement. This paper, based on two-period overlapping generations model, introduces the retirement factors, and builds a general equilibrium framework in four aspects of individual behavior, enterprise behavior, government behavior and capital market equilibrium under the assumptions of completely competitive market, full employment and government control of the retirement age. With the optimality principle and the comparative static analysis, we find that when the economy is in a stable state, life expectancy with the maximum social welfare is positively related to the retirement age, manifesting a negative inverse proportion function form. Based on this functional relation, we use the parametric estimation method and assignment simulation to solve the adjustment formula of the life expectancy and retirement age of the population, and put forward an adjustment comparison table between them. According to the calculation results and prediction of life expectancy by China Issues National Plan on Population Development（between 2016 to 2030）, we recommend extending the retirement age to 65 years before 2030. In the end, by testing the model, on the premise of keeping the pension balance, we find that if there is no adjustment mechanism between the life expectancy and retirement age, sudden changes in life expectancy will reduce the pension payment, and can lead to the losses of social welfare. Therefore, based on the findings of this paper, and in the context of the extended life expectancy of Chinese population, we suggest that the governments should consider building the adjustment mechanism of life expectancy and retirement age, and increase the retirement age with the extension of life expectancy.