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The Research on Individual Accounts Annutitization of Basic Pension System

Author: ZhouXi
Tutor: LinYi
School: Southwestern University of Finance and Economics
Course: Social Security
Keywords: pension system individual account annuitization life insurance
CLC: F842.6
Type: Master's thesis
Year: 2008
Downloads: 73
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Abstract

At the beginning of the 1980s, Chile reformed the pension system, and became the first country to replace its public-as-you-go system with individual accounts. Since its inception in 1981, the new program has undergone a number of challenge, but to now it still went well. Because of the high performance, Chile system is the model, which is popular with many developed and developing countries including China. These countries try to get learn from Chile and reform their pension system. In 1997, the State Council of China issued Document No.26 unify the different pension plans across the country and to establish a partially funded basic pension scheme. The scheme includes a defined-benefit, pay-as-you-go system for older workers and retirees and a multi-pillar system combing social pooling and individual accounts for younger workers.Although there exist many advantages, individual accounts is in danger at the retirement because of the single way to get benefits in China. Now according to our regulations, retirees has to get programmed withdrawal every month from the individual accounts. It is possible for the retirees to use up their individual accounts capital. So we need annuitization. Employees should buy annuity contract. The money is from their individual accounts. In other words we have to annuitize our individual accounts capital in order to be against long-life risk. Individual accounts annuitization improve the pension system of China, and which is the key factor to our pension reform in the future. Individual accounts annuitization has close relationship with many other social and economic problem, such as social stability, capital market reform and so on. Besides one thing we must pay more attention, some law and regulation of pension is still conservative. individual accounts annuitization is illegal, but it is certain for a long time.Taking the reality of China into consideration, I analysis the individual accounts annuitization, and get some interesting conclusions.First make laws about individual accounts, which guarantees that individual accounts annuitization be mandatory. The mandatory annuitizaton can reduce adverse selection behavior, and cut the cost of annuitization.Second it is difficult to annuitize the individual accounts capital on the condition there is no a retiree information system. So next step, one of the important task is to establish this system. The information system is not only a clean system, but also a healthy information system which can supply more detail about the retirees’health.Third individual accounts annuitization supply system should be established as far as possible. The retirees buy annuity contract in the annuity market. However there is no annuity market for the retirees, what’s more the lack of annuity products do harm to the individual accounts annuitization progress. So in the next 5-10 years, we will establish annuity market , and as the basis to the supply system. The annuity institutions supply many kinds of production so that meet the different retirees.Forth there layer pension system needs a bridge which make different layer help each other, and realize the aim of enough security of retirees’life. There needs some information technology, and creative ideas more.

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