Industry News | Zhou Xiaochuan: Don't think that there is still a chance for delay in the pension issue

Regarding the pension policy system and its implementation, Zhou Xiaochuan pointed out that first, do not avoid difficult problems; second, don’t think that there is still a chance to delay the pension issue, and it will be more difficult to make choices in the future; third, pay attention to the root cause, at least treat the symptoms Fourth, China has a large population, serious aging, coupled with system transition, the pension gap may be even bigger; fifth, my country's pension pre-funding is not a small number in terms of total number, but it is international In comparison, the ratio of China's pre-funded pensions to GDP is at a relatively low level.

Zhou Xiaochuan, Vice Chairman of the Boao Forum for Asia, Vice Chairman of the 12th National Committee of the Chinese People's Political Consultative Conference, and former President of People's Bank of China. 

Zhou Xiaochuan: Good afternoon, delegates! I am very pleased to participate in this professional forum organized by Caijing, and I also thank Mr. Yao Yudong for chairing the discussion on pensions in this section. In recent years, under the great attention and strong promotion of the Party Central Committee and the State Council, our country has made new measures and new progress in the pension policy system and specific management, especially the introduction of the individual pension system last year, which has also raised many new issues to the research community and academia. Various research institutions attach great importance to this, and some have done a lot of research and put forward opinions from the perspective of social population, some from the perspective of finance and economics, and some from the perspective of policy system. On the basis of these discussions and studies, I would personally like to exchange some preliminary views with you. The angle of this discussion can focus on pension as the content of wealth management, and can also focus on the policy and institutional arrangement of pension. I will start with the latter, and if I have time, I am willing to discuss management issues with you later. First of all, under the arrangement of the individual pension policy system, everyone has taken action and made progress, and at the same time, it is hoped that a stronger incentive mechanism can be provided. When discussing incentives, I will first use a rational hypothesis. The so-called rational hypothesis is that we assume that this incentive work is mainly for people who will retire in the future, and they will make a more rational estimate of their lifelong finances based on existing data and policies. Therefore, we can understand how much pooled pension will be arranged by the government or the state in the future? Are there still some gaps? Can the gap be solved through personal accumulation? Of course, very sufficient rational estimation may not be possible, mainly because the future uncertainty is relatively large. The so-called rational hypothesis is roughly that there is a calculation to guide current actions and respond to the individual pension plan given by the national institutional arrangement. One of the realities in China is that it has a large population and an ever-expanding pension. In general, due to the aging of the pension pool, it is easy to have a gap. In this case, the pension arranged by the state is basic and will not be too high, or the relatively large gap will rely on individual pensions to supplement to a greater extent. If the basic measurement conditions are not clearly explained to future retirees, under the inertia of the past system, they will feel that the state is in charge after retirement anyway, why do they need to engage in some personal pre-planning? Enterprises will also think, why bother with employees? Therefore, in order to provide a good measurement condition for rational personal pension management, these things should be made clear. One basis for rational estimation is based on the LFS concept currently proposed internationally - financial security throughout the life cycle. According to this concept, under different average life expectancy conditions, the standard of living after retirement is about 70% and 80% of pre-retirement income. Now we are not enough to measure the conditions for future retirees and communicate with the public; The incentive mechanism we discussed still has certain flaws. Judging from the discussion in society, our newly introduced system is good, but the incentive mechanism is weak. There are two issues to discuss: First, there are still certain defects in the existing individual income tax, and a large proportion is within the scope of non-payment of individual income tax. In fact, this can be changed, of course, it is not a one-day work. The vast majority of people pay taxes, but due to various factors, such as population, family burdens, pensions, etc., deductions or refunds are used, and this area needs to be improved. Second, we ignore an incentive. In many countries' individual account pension plans, individuals and enterprises are mixed, the vast majority of which are of the same proportion, with individuals contributing 8% and enterprises or employers having another 8% to cooperate. From the employee's point of view, he always feels that he has paid 8%, and the total amount of his personal account immediately doubled, which is a great incentive. From a business cost perspective, there's a lot more to discuss. In principle, the wool is still out of the sheep, not that the business owner or employer takes out a part of the money from his own pocket to make personal pension pre-financing for employees, but an institutional arrangement, which will show an incentive effect. Why is this incentive mechanism not working in China? Largely because the money paid by businesses to social security has already been used for pay-as-you-go, and this money has already been spent. This is related to the gap in the transformation of the system. The amount paid by enterprises in our country is not quite small, not 8%, but 16%, compared with 20% in previous years. The 20% contribution level made the cost burden of the enterprise too heavy, affecting the competitiveness of the enterprise, and then lowered by 4 percentage points to 16%, 16% is also a very high level. We will discuss later whether it is possible to use such measures to significantly increase the attractiveness of personal account pensions. We need to consider the difference between realistic conditions and rational assumptions, as we do with many economic issues. At the beginning, we said that in theory there are perfect market assumptions, but in practice we have to consider that there are still some peculiarities of the market. There are differences between realistic conditions and rational assumptions, and there are three main differences: First, group differences. Group differences are likely to be more pronounced in China than in other economies. Since the founding of the People's Republic of China, we have begun to implement the pension system, state organs and institutions are a category, enterprise employees, state-owned enterprises are a situation, large collectives, small collectives are different, and later there are private enterprises, which is also another arrangement. China's peasant base is relatively large, and farmers basically do not make arrangements for old-age security. Later, it was said that land was the guarantee of farmers, but this statement was not fully defined as a policy arrangement. Therefore, these group differences must also be taken into account. Even if people are rational and in different groups, the future will be very different, and it is difficult to cover various situations with a simplistic rational hypothesis. Second, generational differences. Due to the many changes in institutional arrangements in the reform transition, the rationality of the elderly, young people, and people who have just graduated and worked after graduation is very different from the basis of their calculations. Third, people will not all be rational. Pension is a future issue, some people think less, to the middle and old age will soon retire will consider more, individual differences are also relatively large. In other words, we set up the pension plan in the hope that the future retirees can consider rationally and make a better cooperative response to the national overall plan and enterprise plan. However, there is a gap between reality and assumptions, so it is necessary to treat each situation differently to strengthen communication with the public, through which the benefits of the system can be better implemented. If these differences are ignored, it is unrealistic for everyone to adopt the same arrangement after retirement. At the same time, if you want to unify, it also involves the various incentives that exist to demonetize, and if they do not take effect immediately, it will cause great problems. The same is true for macro observations. According to the existing financial system and the trend of aging, the trend of transformation needs to increase coverage, the level of future overall pension is relatively basic, or the national overall pension is relatively low, and personal account pension is needed to support and cooperate in order to make the pension more satisfactory level. Of course, some people believe that there must be a road before the car reaches the mountain, and at that time, the retirement age can be extended, and the contribution ratio of the enterprise can also be increased. Although there is room to extend the retirement age, it is not as many years as you want, which involves the average level of health and the productivity of the elderly, and companies will also consider the cost. The proportion of enterprises is not arbitrarily adjusted, and the reason why corporate social security contributions are adjusted from 20% to 16% is because compared with the competitiveness of enterprises, the financial costs of enterprises are too burdensome. It should be said that personal 8% + enterprise 8% is at the median level, enterprise contribution 20% is too high, even if 16% is a very high level in the world, and this 16% can not be counted into the personal account of employees, it does not play an incentive role in employee labor compensation, which will affect the competitiveness of enterprises. Therefore, the consideration of the competitiveness of enterprises is also insufficient. We take into account the gap between reality and rational assumptions, and we need to develop different methods for different situations, and there is a lot of work to be done to avoid simple simplification and calculate the general ledger. There are many differences, which are due to the transformation of the economic system. Before the transformation of the economic system, the proportion of wages was not very high, there were housing, medical care, old-age security, and other contents, and there was a distortion of the relationship between income and cost. There is a distortion between price, cost, and income, an unreal relationship. Therefore, in the process of reform, it is impossible to do too quickly, and so far, many problems remain. How to make future retirees form reasonable expectations and make reasonable plans for retirement should be studied in conjunction with the entire reform transition. In general, labor remuneration should be linked to productivity, and policies should be designed on this basis. Let's go back to the corporate pension security contribution, where did this part go? Just said that pay-as-you-go, due to aging, due to the pension gap formed by the transition, this part of the money is mainly pay-as-you-go, of which 20% or 16% is enterprise contributions. This is not the original intention, from the past planned economy color pension system arrangement, to the Third Plenary Session of the 14th Central Committee initially proposed the "three pillars" of pension, at that time proposed social pooling, personal accounts, commercial insurance, with the "three pillars" preliminary concept. Later, there were some pilots, the initial pilot was 8% + 8%, individuals paid 8%, and enterprises paid 8%. 8% of the enterprise should theoretically go into the personal account, and later because the enterprise also needs to pay the part of the pension pool, 8% + 8% is a bit of an additional burden, and later reduced in many provinces. At the same time, many of the contributions of enterprises are used for pay-as-you-go, so the system formed is actually inconsistent with the original intention, which is equivalent to a concept of forced appropriation. Can this be corrected back? If you feel that the incentive mechanism is not enough and want to strengthen the incentive mechanism, can you change the corporate contribution part back as a contribution to your personal account? It is not impossible, there is a lot of discussion about this internationally. In short, what fills the pay-as-you-go gap? There are basically two options, One scheme is that the contribution part of the enterprise with the personal pension plan is fictitious, that is, the nominal account, recorded in the account, but there is no real money, as a wealth management there is no real money to invest, but it is a gradual process, from the beginning of the empty account, the nominal account will gradually be real, the future is still hopeful. In this process, the rate of return on money is basically measured according to the rate of return of government bonds, which is one method. In addition, China began discussing two decades ago whether it could restore some of its state-owned assets, especially the state-owned equity of listed companies, to pensions. Some institutional arrangements and attempts have also been made, and although the steps are relatively small and there are many problems, it should still be continued as a topic, and there is still a considerable degree of feasibility. Since part of the pension of Chinese enterprises is used for pay-as-you-go, after a long time, a "three-pillar" concept is formed, which is different from the international concept of "three-pillar". Our first pillar is arranged by the government, the second pillar is arranged by enterprises, and the third pillar is personal and commercial. This is different from the common use of the situation in the world, and the "three pillars" used by the World Bank and the OECD are different from the concepts of "four pillars" and "five pillars" later in order to refine. Why do we need to refer to the international definition of the "three pillars"? Pension is a long-term matter, China can only get practical experience in a cycle of decades or a hundred years, and in the absence of timely feedback, international experience has become more important. Whether what we are doing is wrong, whether it is good or not, and how it should be improved, to a large extent, can be compared internationally, and it is best to be consistent or close to the international definition. We have noted that some officials and scholars have raised this issue in the past two years. In short, there are still many problems in the pension area, and there are five personal opinions: First, don't shy away from difficult questions. Second, don't think that this problem is long-term, there are still many opportunities for delay, and it will be more difficult to make choices later. Third, we must pay attention to treating the root cause, not only treating the symptoms, but at least combining the treatment of the symptoms and the root cause; Don't be sick and don't treat it, so that taking more pain medicine will solve the problem. Fourth, the research tasks and challenges of our pension are huge. China's foundation is not good, the population is large, the aging is particularly serious, almost the most prominent aging trend in the world, coupled with the transition, the gap may be larger. Fifth, China's pension pre-financing, from the total number of trillions, not a small number, but from the international point of view, in order to facilitate comparison, if the GDP of various countries is used as a frame of reference, the total amount of pre-financing pensions in most countries is about 50%-100% of GDP, and some countries exceed 100%; In China, the proportion is lower, about 10% or less, some say 6%, others say 2% to 3%. These all show that our existing foundation is not very good, so the future challenges are great, or we must attach great importance to, in-depth research, objective research, we must better deal with aging, system transformation and future pension problems, and truly achieve high-quality development. I'll stop here, thank you! The above content comes from the "What matters is the economy" public account article

Further reading 1 

I have attended several meetings on the old-age security system in the past, and in most cases they have analyzed from an economic perspective why the current system is unsustainable and needs to be reformed. In fact, it is not easy to achieve comprehensive consensus on these economic analyses, and there is always controversy at all times. Because some people will look at it from a long-term perspective, some people will look at it from a short-term perspective, someone will look at the feasibility of different departments, and some people will look at it from the perspective of different interest groups, and complete unification is not easy. Assuming that these analyses are broadly consensual, what do we need to do? I have the following aspects to consider. It is important to calculate the pension gap and use the incentive role of the pension contribution system To meet the serious challenges posed by ageing, it is important to calculate them. First, it is necessary to calculate more precisely how big the pension gap will be in the future. This calculation depends on assumptions, such as future life expectancy. These assumptions can also be a distribution, with vertices of a normal distribution, but also probability distributions on both sides, plus several possible policy effects, and the conclusion of future analyses will be one interval. Strictly speaking, the method should use dynamic system simulation (simulation) rather than the typical actuary. Second, build incentive mechanisms for enterprises and individuals. The problem we now face is the reduction of pension contribution rates this year under downward pressure on the economy and the general tax cuts. It stands to reason that under the aging situation, the pension gap is widening, and the contribution rate should be increased and the income should be increased, and the reason why the rate should be reduced is because under the current system, the pension cannot be used as the remuneration of enterprises to workers; As an individual, it also does not reflect the incentive mechanism for labor compensation. The decline in incentives leads to a decline in productivity, which is manifested in a decline in the vitality of enterprises. Although the pension gap is widening and some provinces are beginning to have "holes", pension contribution rates have still to be reduced. In other words, in the design of the mechanism, the important role of pension in enterprise vitality and incentives should be taken into account. Increase the proportion of personal accounts in the three pillars of pension The share of personal accounts in the three pillars of pension should be substantially increased. Give full play to the incentive role of personal accounts, one is to stimulate productivity, and the other is to encourage individual contributions, so as to avoid the recurrence of the moral hazard of "eating big pots of rice" under China's traditional planned economic system. The definition and division of the three pillars and the proportional relationship are important. It may be noted here that China's current official definition of the three-pillar caliber is different from the international understanding (such as the definition from the World Bank and the OECD), which makes it easier for misunderstandings to occur internationally. Historical reduction is used to address generational differences to achieve pension system transition It is necessary to consider drawing on the experience of past housing reform and using historical restoration methods to deal with the problem of "vacancies" in the personal accounts of people of different generations and different jobs in the past. There is still a consensus in the world on what the future system is good, but the old-age security system is cross-generational, and there are transitional difficulties in transitioning from one system to another. In the past, the elderly, middle-aged people, and people of different generations in China were under different systems, which caused practical difficulties in expanding the transition to the system of implementing personal accounts. In some housing reform experiences, a score based on years of service and position is calculated, which is somewhat equivalent to the purchasing power of housing that should have been received in the past. Through conversion, a considerable number of people who have worked for decades can get "housing reform" at a low price or free of charge. This idea is also close to the "nominal personal account" (NDC) promoted by several European countries. If the method of historical restoration is not used to convert personal accounts, or if this matter is not done well, there are fairness and reasonableness problems in expanding the proportion of personal accounts, which naturally leads many people to oppose the implementation of expanding personal accounts. Another special situation in China is that when implementing "nominal personal accounts", farmers need special treatment. For a long time, China's policy is that peasants who have not entered the city have two pieces of land contracting rights and homesteads for their pensions, plus subsistence allowances. If a farmer has been farming for a number of years, and then goes to the city to work and does not return to his hometown, he can calculate the "nominal personal account" from the time he started working. Doing so would prevent migrant workers from "occupying both sides," an issue that the Ministry of Finance has been considering. It should be clarified that all corporate and individual contributions are provided to personal accounts The relationship between pension company contributions and personal accounts should be re-organized. In the past, enterprises paid 20% and individuals paid 8%. The 20% part of the enterprise really could not hold on, so it was reduced, and now it is reduced to 16%. 8% is theoretically paid to the personal account, but in many places the pension system has a deficit, 8% can not keep the real account, the personal account is only nominally belonging to the individual, in the actual operation is often diverted to fill the gap in pension expenditure in the same period, known as "empty account". Moreover, there is little transparency about what investments have been made and what operating returns personal accounts have. Twenty per cent (currently 16 per cent) of corporate contributions are not provided to individual accounts, taking care of pay-as-you-go needs and significantly ignoring the incentive effect on productivity. The reason is that there is not a deep understanding of policy tools, there are also deviations in the position of the department, and the policy design is a manifestation of "laziness", which feels that this is relatively simple, in fact, it greatly reduces the incentive role in the pension system, creates opacity, and reduces everyone's confidence in the pension system. Therefore, it should be made clear that both the corporate contribution part and the personal contribution part should be contributed to the personal account, and the two should be in equal proportions. Allocate state-owned capital to make personal accounts If the personal account has been restored and recognized, the next step should be to allocate state-owned capital to make the personal account. China has a large number of state-owned enterprises and state-owned assets, and the central government has decided to allocate some of the equity of state-owned enterprises to supplement pensions. This matter is not easy to make up your mind. Unfortunately, around the beginning of this century, when the state was almost determined to transfer state-owned capital to replenish the social security fund, there were a slight fortuitous factors, and in the end, it did not happen. It is correct and pragmatic to decide to allocate 10% of state-owned capital first. It is said that there are still many problems in the allocation process. From the perspective of macro aggregates, it is necessary to really calculate the accounts clearly, so that we can know how much state-owned capital needs to be allocated to solve this problem. From a micro point of view, the allocation of state-owned capital should not only solve the small gap in overall planning, but also consider filling the gap in "nominal personal accounts" so that future personal accounts have a stronger credibility and incentive effect. This allocation ratio is certainly indispensable, and 10% cannot be solved. In addition, the transfer of state-owned capital to enrich the social security fund and the realization of personal accounts also involve the reform of mixed ownership of state-owned enterprises. Solve the problem of labor mobility with N-to-1 payments Now that transportation is developed, labor mobility is becoming more and more common, migrant workers have moved to cities to work in many places. In the past, pension management was coordinated at the provincial level, and in some provinces it was coordinated at the prefecture and city level. According to the approach proposed a number of years ago, the pre-financing accumulation funds in the pension system should be portable. In fact, it is easier to pay with an N-for-1 account than to increase pension portability. When an employee has worked in N places and retires, pension managers in different regions pay the retiree the retirement funds for that period, including the return on investment operations (subject to transparency), according to the contributions made during his or her working life. From a financial point of view, thanks to the development of IT technology, the practice of N-to-1 account payments has become quite easy and achievable. This is different from the funds taken away by the departure of migrant workers and migrant girls in Dongguan at that time, because at that time, only the part of the pension payment personal account was allowed to be taken away, and the majority of the head was still the overall part handed over by the company. In fact, both parts should be put into the personal account through the calculation method of historical restoration, but it can not be portable. There are many problems in portable operation, and it is easy to have the problem of information asymmetry and personal losses for employees. In addition, in the future, the pre-financing and accumulation of pension is an operation, responsible for maintaining and increasing value; It is also a matter of consideration whether it is a number of companies to maintain and increase its value and transparency. If it is several to maintain and increase value, then there is competition and improvement between these institutions, some institutions will do well, and some institutions will do poorly. If there is only one business, and there are problems such as poor or corruption, it will basically not be exposed and no one can test it. For example, if there is a problem of low rate of return, he says that this has been done very well, and there is nothing you can do with him. If there are several institutions operating, the problem of future multiple payments to specific individual pensions needs to be addressed, and future N-to-1 payments can also be used to solve the problems posed by labor mobility. Achieve high transparency of pensions In order for the pension system to be more effective, and in particular the incentive mechanism for contributions, full transparency is needed. Everyone can clearly and conveniently check their pension personal account online. If you have worked in several places, you can also clearly check the balance of pension accounts in several places, as well as the return on operation. At the same time, it can also give insured employees the right to choose which institution to entrust to be responsible for the operation of pension funds, and the return can be seen at any time. Everyone knows that with the development of technology, this return can even see the change of a few digits after the decimal point, that is, the increase in value can be seen. Unlike before, querying this information is more expensive. But truth be told, pensions are long-term and don't need to see the return on investment in a very timely manner. Carefully design the proportion of pooled accounts in the three pillars of pension In the coordination part, it is necessary to carefully design the proportion and coverage of the pooled account in the three pillars under the current situation in China. The overall proportion needs to be considered more comprehensively, and it should be considered in conjunction with the second pillar and the third pillar. Moreover, the overall part also deals with the relationship between central and local finances. In terms of the overall planning method, there are currently subsistence allowances for rural areas and pooled pension funds for urban design. In fact, there are a variety of policy tools to achieve overall planning internationally, including relevant policies to support the bottom line of guaranteed income of individual accounts. Adequate tax incentives should be given to the second and third pillars In the plans for the second and third pillars, there is a general feeling that the incentives given by our country in terms of taxation are inadequate. Old-age care in China involves a large number of elderly people. If this system is well done, it is very important for the long-term peace and stability of the country and the well-being of the people. Since fiscal and taxation policies should support the establishment of a reasonable system, they should allocate capital to give sufficient incentive mechanisms, and we can refer to various international experiences to introduce reasonable tax arrangements. Tax incentives should be designed differently for different pillars (or even sub-items within pillars). Establish a reasonable pre-financing pension management system It is necessary to establish a reasonable pension management system and cooperate well with the development of the capital market. Although there are fluctuations in the capital market, especially in emerging markets, when the bubble bursts, it will bring great questions to everyone, is it worthwhile to invest in the capital market of the pre-accumulated pension? However, from a longer historical perspective, the possibility of maintaining and increasing value depends on the capital market. On the one hand, pension investment has great benefits for the development of the capital market; On the other hand, pension investment has a span of decades, and this return is important for the sustainability of the pension system in the long run. Without this return, pension contribution rates would need to be significantly increased. According to different hypothetical scenarios, the supporting effect of investment return on the pension system can be calculated, but there are also risks, and a risk-sharing mechanism needs to be designed. Therefore, making good use of the capital market and making some institutional arrangements in the middle is a very important thing for pension reform, and it is also a very important thing for the whole country to maintain prosperity and strength. In addition, the capital market provides some tools that help to use capital market tools to fill and replenish personal accounts with current state-owned capital on the basis of reducing and calculating "nominal personal accounts". The above content is from the 19-20th issue of China Finance (2020), based on the author's speech at the international seminar on "Pension Reform: International Experience and China's Solutions" in Chongqing on December 3, 2019.

Further reading 2 "

Zhou Xiaochuan pointed out that the pension system obviously has an obvious dependence on the capital market. With the increase of the world's population, with the development of aging, in order to make the pension system can get satisfactory results, it is necessary to promote economic growth, economic growth first needs to have enough investment, the efficiency brought by these investments can promote GDP growth, so as to meet the changes in the demographic structure, but also create more jobs for the future, so that the future pension has room for maneuver. Moreover, the long-term return on investment can significantly reduce the cost of pre-financing pensions in the current period, and there is a lot of international experience in this area, and there are also many calculations, so I will not go into details. Zhou Xiaochuan said that the capital market relies very much on the participation of pensions, without the participation of pensions, it is difficult for the capital market to have healthy development and play an effective role. Pensions are the largest source of savings funds, which need to be converted into investments through reasonable and optimized allocations to obtain returns, a process that also promotes economic development and employment. One of the most effective ways to allocate savings is through capital markets. In addition, through the healthy development of the capital market, the efficiency of resource allocation is obtained. The healthy development of capital markets is inseparable from institutional investors, and from the experience of many emerging markets and the experience of China, the development of institutional investors is crucial. The following is the full text of the speech: Dear participants, I am very pleased to have the opportunity to participate in this meeting of the World Social Security Research Center of the Chinese Academy of Social Sciences. First of all, thank you Director Zheng Bingwen for inviting me, I am on a business trip, so I can only participate in this discussion by submitting a video, and please forgive me. The World Social Security Research Center of the Chinese Academy of Social Sciences chooses a theme to publish the "China Pension Development Research Report" every year, which I think is very meaningful and very important. Pension is a worldwide problem and an important agenda in China's structural reform. The "China Pension Development Research Report" plays a very important role in studying objective laws and proposing policy design and demonstration. We also know that the pension system and related policies have always been an area of great controversy, and it is precisely because it is important and controversial that it is more necessary to strengthen research to provide useful analysis and opinions for the design and demonstration of the policy system. This year's "Research Report on China's Pension Development" by the World Social Security Research Center of the Chinese Academy of Social Sciences chose the topic of pension system and capital market, which I think is also a very important and practical topic. This research report has done a lot of in-depth research and discussion in this regard, and provides very important opinions, and here I would like to exchange and comment with you on some of my own superficial understanding of this issue. First, the pension system obviously has an obvious dependence on the capital market. With the increase of the world's population, with the development of aging, in order to make the pension system can get satisfactory results, it is necessary to promote economic growth, economic growth first needs to have enough investment, the efficiency brought by these investments can promote GDP growth, so as to meet the changes in the demographic structure, but also create more jobs for the future, so that the future pension has room for maneuver. Moreover, the long-term return on investment can significantly reduce the cost of pre-financing pensions in the current period, and there is a lot of international experience in this area, and there are also many calculations, so I will not go into details. Second, the capital market relies very much on the participation of pensions, without the participation of pensions, it is difficult for the capital market to have healthy development and play an effective role. Pensions are the largest source of savings funds, which need to be converted into investments through reasonable and optimized allocations to obtain returns, a process that also promotes economic development and employment. One of the most effective ways to allocate savings is through capital markets. In addition, through the healthy development of the capital market, the efficiency of resource allocation is obtained. The healthy development of capital markets is inseparable from institutional investors, and from the experience of many emerging markets and the experience of China, the development of institutional investors is crucial. Third, one of the important roles played by the capital market for the economy is to promote the improvement of corporate governance, so as to improve the operating capacity of enterprises and improve the efficiency of enterprises. In order to promote the improvement of the governance of listed companies, it is necessary to rely on institutional investors, especially those with long-term goals, and there are high hopes for the role of pensions. The above basic relationship has been fully paid attention to in this pension development report. I also want to say that there are also different views that the development of pensions can also be less related to the capital market, and one possibility here is based on the assumption that the population structure is a very smooth and stable structure, there is no special aging, and there is no special extension of life expectancy. In this case, pay-as-you-go is not a good option. If you mainly rely on the pay-as-you-go system, you will feel that the pension system has no necessary connection with the capital market. However, the above assumption does not hold. International empirical studies have clearly pointed out that the three-pillar format must be considered, along with a greater shift from welfare to contribution mechanisms, one of the important reasons being financial sustainability. I want to emphasize another important reason, that is, we must consider the social incentive mechanism, this incentive mechanism not only refers to the mechanism that can pre-finance and contribute to the pension, but also it is also an incentive mechanism for labor productivity, so that enterprises can better play the workers, give incentives to workers, can obtain good efficiency and support economic growth mechanism. We also noticed that sometimes the pension system and the capital market have little to do with a view, in fact, from the division of labor and the department's own considerations, after all, the complexity of the social economy, each department has its own responsibilities, the department in charge of the pension system has no special obligation to consider supporting the development of the capital market, nor is there a special obligation to consider the labor productivity of enterprises and the incentive mechanism for enterprise workers. Of course, they and the finance sector still have to consider financial sustainability, because financial sustainability needs to be a concern, but this situation may lead to insufficient awareness of this interdependence between departments, at least in terms of responsibility. Finally, there is also a certain uncertainty in this topic. From historical experience and data, pension participation in the capital market can achieve great financial benefits, but in the context of the 2008 global financial crisis and the recent new crown epidemic, we have also seen that the stock indexes of major stock markets may deviate from economic fundamentals and rise, largely related to quantitative loose macro policies. If there is a relatively obvious bubble in the capital market, as some economists say, the yield on future investment stocks is very low, and the yield on current investment bonds has also fallen to a very low level, which requires adjusting our expectations for the return on pension investment in the capital market. In terms of contribution to Life Time Financial Security, I myself participated in the discussion of the 30-member panel in the previous paragraph, and they have lowered their expectations, not because of the change in the relationship between capital markets and pension systems, but because of the high valuation in the context of the global financial crisis and the pandemic. Then there is the global threat of populism. Political leaders in many countries have tenures and are therefore concerned about current performance, and the issue of pensions is a long-term issue that largely exceeds what leaders can do during their tenure. It is possible to lead to the so-called populist tendency to give people and voters timely short-term benefits, while ignoring the long-term nature of economic growth, neglecting sustainability, and ignoring incentives for productivity and productivity. Especially in the context of the global financial crisis and the pandemic, the fiscal deficit of all countries has increased significantly, and the proportion of public debt to GDP has increased significantly. In the past, the EU's discipline was that the fiscal deficit should not exceed 3% of GDP and the cumulative public debt should not exceed 60% of GDP, but now these figures have been greatly exceeded. The challenge for political leaders is that it is difficult for them to change deficits, especially debt-to-GDP ratios, over the course of their tenure, and since they are unlikely to make improvements, they are likely to adopt policies that are left unchecked. In such cases, it is difficult to make very effective decisions on long-term socio-economic issues and may result in some unsatisfactory financial sustainability of the pension system and investment returns. Therefore, in addition to studying the positive relationship between pension funds and capital markets, we should also pay attention to the new difficulties and challenges currently faced, make a comprehensive and effective analysis of the relationship between pension and capital markets, and make greater contributions to our institutional reform and our future. I am here to make such a superficial comment, what is not right, please criticize and correct, thank you! The above content comes from Sina Finance. Based on the author's speech recording at the 10th Chinese Academy of Social Sciences Social Security Forum and the release of the "China Pension Development Report 2020" in Beijing on December 19, 2020 - "Pension Fund and Capital Market" seminar.