Population ageing and income inequality in China: The role of pensions

We investigate the effect of population ageing on income inequality in China, with particular attention to the role of public pension systems. We find that the size and distribution of pensions matter in understanding how ageing affects inequality. When using disposable income as the income indicator, the impact of population ageing on income inequality is found to be minimal. However, when pre-pension income is analysed, population ageing exacerbates income inequality, accounting for around 17% of the rise in income inequality from 2002 to 2018. Therefore, the current pension system counterbalances the negative impact of population ageing on income inequality. This is mainly because pensions raise the average income of the elderly and reduce inequality within this group, particularly in urban areas. Nevertheless, due to the substantial disparity in pension benefits between different pension schemes, there exists a significant gap in pension income between urban and rural areas. This gap leads to a more pronounced urban–rural income inequality among the elderly after they receive pensions.