Stochastic Forecast of the Financial Sustainability of Basic Pension in China

Abstract

The paper focuses on the stochastic forecast of the financial sustainability ofbasic pension, based on predictions for the population of China. The population was calculated iteratively by using Leslie matrix. An auto-regressive moving average model was adapted for the predictions of the fertility rates and the mortality rates. The Monte Carlo stochastic method was adapted for the projections of the dynamic process of the financial sustainability of the basic pension from 2013 to 2087 by 5000 times simulation. The forecasting results show that the imbalance of basic pension will occur in 2026. If the statutory retirement age is postponed by five years, the occurrence of the financial gap of the basic pension may be delayedby about 20 years, and the median deficit of basic pension will be reduced by about 64.25% in 2087.

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