What does the social security pension replacement rate mean?

Pension replacement rate refers to the ratio of the pension level of workers when they retire to the wage income level before retirement. It is one of the basic indicators to measure the difference of living security level between workers before and after 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.

In the design of China's old-age insurance system, the replacement rate of retirement pension target is 59.2% for employees who have paid for 35 years. After civil servants and employees of public institutions have worked for 35 years, the target replacement rate of retirement pension is 90%.

Extended data:

Reasonable range of pension replacement rate

There is a reasonable range of pension replacement rate. Because to ensure the basic life after retirement, the replacement rate should not be too low, and the normal consumption level (the contribution ratio should not be too high) and the burden of the national pension system (the financial burden should not be too high) should be ensured, and the replacement rate should not be too high.

According to the World Bank, "For a typical full-time worker, under the compulsory payment system, the replacement rate of after-tax income should be 40% to 60%. Less than 40% of retirees can't maintain a basic standard of living without a source of income, and more than 60% of the national pension system can't afford it, which is likely to reduce benefits in the future. Aaron George Grech(20 13) found that some OECD countries are below 40%, while others are above 60%. ILO Convention No.238 holds that the minimum replacement rate should be 45%.

Some domestic literatures have calculated the optimal social pension replacement rate by using the two-stage intertemporal iteration model (OLG), and some have calculated the minimum pension replacement rate in urban and rural areas by calculating the consumption expenditure that meets the basic living standards of rural residents and urban residents in China.

Baidu Encyclopedia-Pension Replacement Rate