A Simple Method for Projecting Pension Deficit Rates and an Illustrative Application

In this chapter presented a simple method associated with the ProFamy projection model and software to project the annual pension deficit rate based on (1) The elderly dependency ratio determined by demographic factors of fertility, mortality and migration; (2) The retirement age; and (3) Four (or three) pension program parameters, which can be predicted by trend extrapolation or expert opinions. These input parameters can be derived from commonly available data. The illustrative application to China demonstrates that if the average age at retirement gradually increases from the current very low level to age 65 for both men and women in 2050, the annual pension deficit rate would be largely reduced or eliminated under various possible demographic regimes up to the middle of this century. With everything else being equal, the annual pension deficit rate in the scenario of medium fertility (associated with a two-child policy) would be much lower than that under low fertility (associated with the current fertility policy unchanged) after 2030. The impact of potentially faster mortality decline is likely sizable but relatively moderate; it starts earlier than the effects of fertility change. Note that one may also use the simple method presented in this chapter to explore the magnitude and timing of impacts on future pension deficits due to alternative international migration and/or pension policies by predicting or assuming the size and age/gender structure of international migration and/or the pension program parameters.