China and the World Bank's Multi-Pillar Pension Model :Observations, problems and proposals

Abstract: Like most countries in the world, China is facing a rapid aging population and the traditional Pay-As-You-Go (PAYG) pension model is urgent to be reformed. At present, three hierarchies have formed in current pension system, namely basic pension system based on combining social pooling with individual accounts, supplementary pension system by establishing Enterprise Annuity (EA) system and voluntary individual saving. The design of those three hierarchies in current pension system is just the practical use in China of multi-pillar pension model proposed by World Bank in 1994. In this paper, I focus on how China works with the World Bank multi-pillar pension model. I analyze the adoption and deviation of Chinese current pension system from World Bank's model, three main problems and challenges of current Chinese pension system are summarized and analyzed in this paper, namely low coverage rate, serious fiscal pressure and poor pension fund management. Meanwhile, I propose the corresponding solutions aiming at these problems, including establishing a sound legal system, lowing moderately the current contribution rate, more tax incentives of EA system, expanding pension funds invest channel and setting up an effective supervision and audit system etc. Key Words: