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.
Life Expectancy and Retirement Age
Journal of Finance and Economics Vol. 44, Issue 04, pp. 62 - 75 (2018) DOI:10.16538/j.cnki.jfe.2018.04.005
Bai C E, Qian Z J. On the increase in the Chinese aggregate capital income share: An investigation from provincial perspective[J]. Journal of Tsinghua University (Philosophy and Social Sciences), 2009, (4): 137-147. (In Chinese)
Hu S Q, Xu J L. Longevity risk, pension system and capital accumulation[J]. Journal of Finance and Economics, 2011, (8): 125-134. (In Chinese)
Huang J Y, Shi J J. Prediction of population life expectancy based on BP algorithm[J]. Statistics & Decision, 2007, (6): 60-62. (In Chinese)
Kang C K. Research on the relationship between public pensions and retirement age under the background of population aging[D]. Southwestern University of Finance and Economics, 2014. (In Chinese)
Le H. Analysis of factors influencing on the level of urban pension insurance based on the III OLG model: A case study of Shanghai[J]. Scientific Research on Aging, 2016, (1): 20-33. (In Chinese)
Li Z S, Lv Y B, Liu H J. Identification and quantification of longevity risk: Data from China[J]. Statistics & Decision, 2011, (16): 72-74. (In Chinese)
Lian X Q. The influence of the aging of the population on the working age population[J]. Journal of Tongji Medical University (Social Science), 1990, (1): 55-58. (In Chinese)
Lin B. The influence of the delayed retirement age on the balance of pension funds[J]. Research on Financial and Economic Issues, 2014, (12): 41-46. (In Chinese)
Lin Z J, Gong L T. Schooling, retirement, and social security[J]. China Economic Quarterly, 2007, (1): 211-230. (In Chinese)
Ma X L, Qu F T. Cost-benefit analysis and intergenerational equity: A new intergenerational discounting approach[J]. China Population, Resources and Environment, 2011, (8): 22-28. (In Chinese)
Wang X J, Zhao M. Life extension and deferring retirement: International comparison and China’s empirical research[J]. The Journal of Quantitative & Technical Economics, 2015, (3): 111-128. (In Chinese)
Wei X. A study of resident consumption based on leisure time utility function: An empirical test of Chinese data[J]. Economic Science, 2006, (4): 104-113. (In Chinese)
Xie S Q. Innovative solutions to longevity risk[J]. Insurance Studies, 2011, (4): 70-75. (In Chinese)
Xu W, Chen B K. Bank lending and economic fluctuations in China: 1993-2005[J]. China Economic Quarterly, 2009, (3): 969-994. (In Chinese)
Yang Y N, Zeng Y, Qu T T. Does defer retirement age reduce worker’s personal pension wealth?[J]. Journal of Financial Research, 2014, (1): 58-70. (In Chinese)
Yang Z G. The public pension for enterprise employees, benefit replacement rate and population growth rate[J]. Statistical Research, 2008, (5): 38-42. (In Chinese)
Yin J, Huang R. Research on population aging, retirement age and long-term solvency of basic pension system[J]. Theory and Reform, 2012, (4):73-76. (In Chinese)
Zeng Y, Guo Y F, Zhang L. Delaying retirement strategy based on longevity risk and OLG model[J]. Journal of Finance and Economics, 2013, (4): 83-93. (In Chinese)
Zhang Y. The postponement of retirement age and payment balance of pension plan: Mechanisms and policy effects[J]. Journal of Finance and Economics, 2011, (7): 4-16. (In Chinese)
Aubert P, Duc C, Ducoudré B. French retirement reforms and intragenerational equity in retirement duration[J]. De Economist, 2013, 161(3): 277-305.
Casamatta G, Cremer H, Pestieau P. The political economy of social security[J]. Scandinavian Journal of Economics, 2000, 102(3): 503-522.
Casamatta G, De Paoli C. Choosing the legal retirement age in presence of unemployment[J]. Recherches Économiques de Louvain / Louvain Economic Review, 2012, 78(1): 5-25.
Chai J J, Horneff W, Maurer R. Optimal portfolio choice over the life cycle with flexible work, endogenous retirement, and lifetime payouts[J]. Review of Finance, 2011, 15(4): 875-907.
Hugonnier J, Pelgrin F, St-Amour P. Health and (other) asset holdings[J]. The Review of Economic Studies, 2013, 80(2): 663-710.
Kalwij A, Kapteyn A, De Vos K. Retirement of older workers and employment of the young[J]. De Economist, 2010, 158(4): 341-359.
Lacomba J A, Lagos F. Population aging and legal retirement age[J]. Journal of Population Economics, 2006, 19(3): 507-519.
Michello F A, Ford W F. The unemployment effects of proposed changes in social security’s “normal retirement age”[J]. Business Economics, 2006, 41(2): 38-46.
Pecchenino R A, Pollard P S. Dependent children and aged parents: Funding education and social security in an aging economy[J]. Journal of Macroeconomics, 2002, 24(2): 145-169.
Weller C E. Raising the retirement age for social security: Implications for low wage, minority, and female workers[R]. Working Paper, Center for American Progress, Washington, DC, 2005.
Zhang J S, Zhang J, Lee R. Mortality decline and long-run economic growth[J]. Journal of Public Economics, 2001, 80(3): 485-507.
Cite this article
Yao Haixiang, Wei Jiahui, Ma Qinghua. Life Expectancy and Retirement Age[J]. Journal of Finance and Economics, 2018, 44(4): 62-75.
Previous: Foreign Trade, Interregional Trade and Carbon Emissions Transfer:Analysis Based on China' Regional Input-output Tables