What is the pension replacement rate?

Pension replacement rate refers to the ratio of the pension level of workers when they retire to the wage income level before retirement.

Pension replacement rate is an important part of a country or region's pension insurance system, and it is also an economic and social indicator reflecting the living standards of retirees.

A grim reality is that at present, the replacement rate of social security pension is only about 40%, and most enterprise annuities are basically difficult for the public to enjoy. Old-age security and self-financing for the elderly have become the main way out for most people.

There are four commonly used substitution rate calibers.

The first is the target replacement rate of system design, which refers to the ratio of pension to the average salary of employees in the previous year when the representative individual employees who continuously participate in insurance contributions retire. The target replacement rate reflects the system design, especially the target guarantee level of the basic pension calculation and payment method.

Second, the actual replacement rate of pensions for newly-added retirees in that year refers to the ratio of pensions for newly-added retirees in that year to my salary in the year before retirement. It measures the income difference between individuals before and after retirement.

Third, the average pension replacement rate of all newly-added retirees refers to the ratio of the average pension of all newly-added retirees in that year to the average salary of employees in the previous year. Measure the income difference between newly-added retirees and on-the-job employees in that year, and reflect the actual level of protection of pension calculation and payment methods.

Fourth, the average replacement rate of pensions for all retirees refers to the ratio of pensions to wages of all retirees in that year, which measures the overall difference in income levels between retirees and incumbents. A big difference between social insurance and commercial insurance is that the state will constantly adjust the pension level according to economic development and price changes.