Occupation pension for public employees in the People's Republic of China: A new approach with defined benefit underpin pension plan

• Date: 01 August 2018
• DOI: http://doi.org/10.1111/rode.12404
• Author: Kai Chen
• Published date: 01 August 2018

SPECIAL ISSUE ARTICLE

Occupation pension for public employees in the

People’s Republic of China: A new approach with

defined benefit underpin pension plan

Kai Chen

Peking University, Beijing, People’s

Republic of China

Correspondence

Kai Chen, Department of Risk

Management and Insurance, School of

Economics, Peking University, No. 5

Yiheyuan Road, Haidian District, Beijing,

P. R. China 100871.

Email: chen.kai@pku.edu.cn

Funding Information

National Natural Science Foundation of

China (NSFC) Young Scholar Grant No.

71503016 and Ministry of Education Key

Projects of Philosophy and Social

Sciences Research Grant No. 14JZD027.

Abstract

The State Council of the People’s Republic of China

announced a reformed pension plan for public employees

with the occupation pension plan in January 2015, offi-

cially disclosing that the social pension systems for pri-

vate and public employees will be unified. Our proposed

occupation pension plan for public employees is one of

the important components in transiting from a dual-track

pension system to a sustainable and unified system. We

aim at providing a pension design, that is, the defined

benefit (DB) underpin pension with estimates of the costs

and benefits. We have used a financial engineering

approach to calculate the hedge contribution for a DB

underpin hybrid pension plan benefit. We also treat pen-

sion benefit and salaries in aggregate. Therefore, we pro-

pose a stochastic and exogenous salary model.

Employees’total benefits can be determined by multiple

factors, such as inflation, economic environment, and

employer’s preference. However, the expectation of

employees’total benefits should not be affected by the

change of salary and pension benefits. Our results could

facilitate the ongoing pension reform in the People’s

Republic of China, providing a rigorous benchmark with

public policy implications as to plan design, cost estima-

tion, as well as risk management approach.

DOI: 10.1111/rode.12404

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©2018 John Wiley & Sons Ltd wileyonlinelibrary.com/journal/rode Rev Dev Econ. 2018;22:990–1004.