Commercial pension pilot for China
Scheme, starting on January 1, aims to attract more people to private system
China will launch its commercial pension pilot programme early next year, with the aim of attracting more people to participate in the private system that Beijing is developing for its ageing population of 1.4 billion people.
The initiative will start on January 1 for an initial one-year period, according to a statement by the China Banking and Insurance Regulatory Commission (CBIRC) on Thursday.
Insurers PICC Pension, China Life Pension, Taiping Pension Company under China Taiping Insurance, and Guomin Pension will offer products and services in 10 provinces and cities, including the cities of Beijing and Shanghai, as well as the provinces of Jiangsu, Zhejiang, Fujian, Shandong, Henan, Guangdong, Sichuan and Shaanxi.
The initiative is a new segment of the third-pillar private pension scheme under development by Beijing, which is aimed at tackling the needs of an increasingly ageing population and offers a US$1.5 trillion opportunity for financial institutions ranging from banks to insurers, funds and advisers.
“[It is aimed at] developing commercial pension finance, innovation in services and products that can meet people’s retirement demands, and providing more secure, mature and stable financial products with standard [investment] targets to ensure long-term value,” the CBIRC said in a separate statement.
The insurers would help clients create accounts, plan for retirement, manage funds in the accounts and manage risks, it said.
The CBIRC will evaluate the performance of the pilot programme and enhance regulation to promote a better pension experience in the future.
“The commercial pension [programme] will help tackle retirement problems for China’s population as private [savings] accounts can’t solve all the problems,” said Li Jian, head of nonbank financial research at Huatai International.
People enrolled in the scheme with insurers will not enjoy favourable income tax rates compared with individuals that hold private pension accounts at qualified banks, according to the CBIRC.
However, the regulator has not placed an investment quota on the commercial pension scheme.
The private pension accounts segment, which has a quota of 12,000 yuan (HK$13,232) per year for each member, was seen as not attractive enough for citizens who could afford to put more away for their retirement, experts and market participants told the Post.
The new pension initiative would help cover those people not enticed by the favourable tax policies offered by the private pension accounts, and help more individuals prepare ahead for retirement and boost overall development of private provision, Li said.
The third pillar of China’s pension infrastructure joins the first pillar, the compulsory state pension, and the second, voluntary additional contributions by state-owned entities, companies and their workers. Commercial pension products will become a new category in addition to the existing private pension accounts, which were launched in April, with fund of funds and wealth management products.
The big four state banks – Bank of China, Industrial and Commercial Bank of China, Agricultural Bank of China and China Construction Bank – started to sell retirement savings products as early as November 20 with higher potential returns than standard savings accounts with the same maturity.