Arguments against Individual Accounts in China's Basic Pension System: The Comparison between Financial Defined Contribution and Notional Defined Contribution

In recent years, China's basic pension system which is the combination of social pooling and individual account has faced with problems such as empty individual accounts, low investment returns and weakness of incentive mechanism, etc. The advent of notional defined contribution provides a new thought for the reform of basic pension system in dilemma. In this paper, transaction costs, investment return and incentive mechanism between financial defined contribution and notional defined contribution are compared. The analysis shows that notional defined contribution is more feasible. The schedule for further reform which is feasible in short-term and sustainable in long-term should be decided with full consideration, sufficient argumentation and detailed measurement.