The Impact of Basic Old-Age Insurance on Household Risky Financial Asset Allocation: A Literature Review

Abstract

China has experienced further population aging. By the year 2024, the number of those aged 60 and over was already at 310 million, or 22.0% of the overall population. Meanwhile, household financial assets are shifting away from the notion of bank deposits and real estate and turning into multifaceted risky financial assets, including stocks, mutual funds, and bank wealth management products. Due to the fact that the first-pillar old-age security system covers 1 billion people, basic old-age insurance has attracted growing attention for its effect on the allocation of household risky financial assets. Nevertheless, there is no consensus in domestic and foreign literature regarding whether or not basic old-age insurance has a positive or negative effect on household risky financial asset allocation; the fact that both promoting effects and inhibiting effects have been observed and the institutional causes behind the controversy remain unclear. The pilot model of the private pension system introduced in 2022 has also not been incorporated in the current studies. The current paper is a systematic incorporation of both domestic and foreign literature regarding this topic. It begins with life-cycle asset allocation and household finance theory and goes through the trajectory of research on foreign social security and household asset allocation and summarizes the results of domestic empirical studies on basic old-age insurance using micro data, including the China Household Finance Survey (CHFS). Based on this, it synthesizes mechanisms and patterns of heterogeneity. The research shows that the benefit levels and institutional type are the primary institutional causes of the mismatch between domestic and foreign sources of evidence. The negative impact of urban and rural residents’ old-age insurance on low-education elderly families suggests that the risk attitude channel should be considered. In this paper, the researcher puts side-by-side and contrasts two kinds of evidence, promoting and inhibiting, and determines how these types of evidence differ regarding institutional environments, definition of samples, and identification procedures, which can be used as a reference for further research and changing the multi-pillar old-age insurance system.