Abstract: The adjustment of basic pension for urban and rural residents is related to the vital interests of the senior citizens. Based on the analysis of influencing factors of adjustment, seven schemes about the adjustment rage have been designed. After testing fiscal capacity, we found that the proportion of financial burden of scheme 1 to 5 is between 0.41%-1.33%﹑0.5%-1.35%﹑0.3%-1.36%﹑0.7-1.38%﹑0.83%-1.4% respectively and schemes 6 and 7, which show the trend of increasing first and then decreasing, are between 1.14%-1.57%﹑1.47%-1.89% separately. The indicator of “the basic pension in the proportion of residents’ balance of income and assumption” has been adopted to estimate the appropriateness of central government subsidy and found that scheme 5, which is “price increase rate + economic growth rate × 50% + wage growth rate × 50%”, would be more appropriate. The next step could be: optimize the structure of fiscal expenditure, expand social security expenditure; adhere to the guiding role of central government and encourage local governments and residents to invest in pension insurance.

Key words: basic pension, financial subsidy, local government, substitution rate