Author: Shen Yibing
The essence of the social insurance system is to transfer payments and spread risks, taking out the most typical example of pensions: pensions are fundamentally about using the money earned by young people to spend on the elderly, using the time difference to achieve social security for retirees. It can be imagined as a pool, with water filling from above and water coming out from below. The basic assumptions of the pension system include (but are not limited to): 1. The economic and demographic conditions of society can be matched in a balanced manner over a long period of time. Its fluctuations and ups and downs can be cushioned by the reserve volume of this large pool. 2. The value of the currency is stable. The density of the water in the pool will not change significantly. 3. The safety of the investment behavior of its assets is guaranteed. The system that does not meet these three assumptions is not considered a formal pension system, oh pro. Assumption 1: The economic and demographic conditions of the society can be matched in a balanced manner over a long period of time. Its fluctuations can be cushioned by the reserve volume of this large pool. One of the biggest problems facing the world’s pension systems in stable operations is the aging of the population. More old people but fewer young people, i.e., the rate of draining is greater than the rate of filling, causing total reserves to fall or even face a solvency crisis (e.g., Greece). Due to democratic elections, it is difficult to reduce the pension level for the elderly, while on the other hand there is an equally strong pressure to increase the contribution rate for the young. This makes the two sides a group with opposing interests, with the elderly having paid enough when they were young but not enjoying the benefits they were promised. For the young, the excessive pension levels of the old when they were young become a burden for the young. Unfortunately, the Greek government used its entry into the Eurozone as an opportunity to raise the level of payments to attract voters, despite the fact that it did not have the economic conditions to provide such a good social security package, which, together with other short-sighted behavior of its citizens, eventually led to the outbreak of the Greek debt crisis. The end result is that the social security fund is on the verge of bursting, but there is no autonomous monetary sovereignty, and has to drastically cut pensions, resulting in some of the elderly losing their basic sources of livelihood, living in all kinds of dire straits. (Extended reading: http://www.tianya.cn/publicforum/content/funinfo/1/3339122.shtml) Do not laugh, that’s you! China’s social security system is also facing serious problems, the reason is mainly due to the Mao era population explosion and family planning led to dramatic fluctuations in population figures and the mismatch of the economic situation at the Lewis inflection point, the working population is declining rapidly, but the need to pay pensions is rising rapidly, despite frequent news of population policy relaxation, but until now, this contradiction has been formed and will be in the future This contradiction is already in place and will gradually emerge in the future, despite the frequent news of demographic easing. As a simple example, leaving aside pensions, in terms of traditional Chinese support, families formed in the early 70s, 80s and 90s have four elderly people on top, even grandparents are still alive, and 1-2 children on the bottom. It is like the waist of an hourglass, in the position of the heaviest pressure burden, the most weak position, social security system ditto. The most difficult time period for the social security fund is expected to be 20 years from now until the population growth rate remains stable after the future population easing policy and the new generation of young people start working. Assumption 2: The value of the currency is stable. The current pensions are paid out to contemporaries with the same purchasing power. Assuming that the purchasing power of the salary remains the same and the currency value is stable and depreciates slightly, the purchasing power of the pensions received after retirement according to the original agreement also depreciates accordingly, and in extreme cases, the purchasing power received in the future is less than the purchasing power of the previous accumulated pension contributions converted to the respective point in time. In practice, however, people pay pensions with less regard to the risk of currency value. In addition, if there are irregular fluctuations, for example, a sudden sharp devaluation of the currency on the eve of retirement, the benefits will be even less. In China, I don’t think we need to talk much about the currency value, you know. Assumption 3: The safety of asset investment behavior is guaranteed first of all by the risk of internal control. At present, I still believe that no one would dare to take the risk of significantly diverting the national social security fund, but I also believe that local and small-scale internal control problems are certainly common. The accumulation of small amounts will also be a considerable amount. The second is the investment risk, such a large amount of money, placed in the bank account is certainly safe, but in the case of continued currency depreciation, the funds are also facing considerable depreciation pressure, to a certain degree of risk for a slightly higher return is also a correct strategy, but the risk means that it may increase in value, may also be a loss, especially in recent days is very much on the pension fund into the market plan. Black swan events have to be guarded against and cannot be prevented. Finally, there is the risk of repayment, where only the balance of the personal account is returned to the pensioner upon his or her death (not quite clear here, there is some contradiction in the information and it may vary from place to place), the longer the life expectancy, the higher the return; the shorter the life expectancy, the opposite. If you die just after retirement, then a large portion (the social account balance) is contributed. In addition, there are groups of people who do not have to pay in and can get it for nothing. So from the analysis of the above three assumptions, it is easy to see that the social security system is not a small problem, and the improper disposal of the pension money of all citizens can easily lead to huge social problems, or even political crisis, so the management of social security must be open and transparent, careful and professional. But for individuals, if they can really do the compulsory deposit when they are young to return when they are old, it is indeed a needed social distribution mechanism, because if the money actually comes to the hands of individuals, I believe that the vast majority of people, especially young people, spend it on this, rather than thinking about things 20 or 30 years later, but actually to that stage, and then consider the pension problem is too late. The Chinese tradition of retirement is also considered a form of social welfare, but it is only a moral constraint, and the existence of a social security fund is not unnecessary from a legal and institutional point of view. There are also those who believe that these people who have no intention of living on their own in retirement should be left to fend for themselves. From the point of view of social stability, people who do not even have a rational plan for their own retirement life, you expect them to have reason not to retaliate against society? And although Ponzi scheme is also to use the money of the later entrants to pay back the money of the first entrants, there are similarities in the chronological and capital structure, but there is a big difference between the two in my opinion, because: first of all, Ponzi scheme is the ultimate goal of the initiator’s personal interests, so from the beginning such a high rate of return is destined to be unsustainable, but also just to attract more people to be cheated. And if the manager of the social security fund dares to divert a large amount of universal assets for his own use, then it is best not to be discovered, if discovered …… huh …… Secondly, the Ponzi scheme is an ultra-short-term behavior, but maintained for a year, its pool of money comes entirely from the subsequent investors. Whereas the pool of funds of the social security fund is expandable with the rising economy and certain investment practices, and the manager of the social security fund, namely the government, holds the monetary instruments and is generally less likely to have credit problems. Most people are concerned about this issue because the Ministry of Human Security recently wanted to raise the pension age, and this kind of consideration was introduced, I think most of the time because it did encounter the serious problem of shrinking the pool. But credit risk in my opinion should be unlikely to happen in a short time, because if the national social security burst, then do not this time out to speak, ready to fine soft run is true. Some personal insights, not sure to be able to harness the full content, such as errors, please give more guidance, and will be corrected in a timely manner.