Last Updated on 2022/04/21
On Thursday, China announced the launch of a private pension program that allows employees to save money in pension accounts and invest in financial products, in a major move by the government to address the issues posed by an aging population.
Employees can contribute up to 12,000 yuan ($1,863) per year to their pension fund under the new program, compared to a fixed payment from both employees and employers under the state pension plan, according to the government in a policy statement published on its website.
According to economic conditions, the government would alter the maximum contribution allowed under the new plan. The program would be trialed in some areas for a year before being introduced nationwide.
For the first time, tax discounts on personal pension payments would be provided to encourage participation in the private pension system.
Persuading individuals to set aside a portion of their earnings and invest in such a scheme would be a problem for policymakers. The national per capita disposable income in 2021 was 35,128 yuan.
The securities regulator praised the new program on Thursday, saying it would not spend time drafting rules to make it easier for mutual funds to invest in pensions.
The China Securities Regulatory Commission (CSRC) said in a statement on its website that capital markets can assist preserve and expanding the value of pension funds, helping to proactively address the issues of an aging society.
Meanwhile, through capital markets, pension funds “may give more long-term, stable funding to boost the actual economy.”
Commercial banks and approved financial organizations can open private pension accounts.
According to the paper, funds stored in the accounts can be invested in specified financial products such as banking wealth management products, deposits, and public funds, with investors bearing the associated risks.
Urban employees who already contribute to their basic pension insurance under the state social security system will be eligible for the scheme. When a person with a private pension dies, the assets in their account might be bequeathed.
The private pension market is expected to rise to at least $1.7 trillion by 2025, up from $300 billion now, according to independent consultancies.
Because of its aging population, China needs to expand its diversified pension insurance, according to Nie Wen, an economist with Shanghai-based Hwabao Trust. According to forecasts published by the World Health Organization, 28 percent of China’s population would be over 60 years old in 20 years, up from 10% today, making it one of the world’s fastest-aging populations.