The China Banking and Insurance Regulatory Commission (CBIRC)-supported Guomin Pension, one of the major third pillar pension market participants, has recently rolled out its first product, with other market participants saying that the official personal pension scheme might be available to the public in the second half of this year or early next year.
Guomin Pension, whose shareholders consist of major Chinese banks, securities firms and insurers, was formed in March this year to promote third pillar, or personal, pensions in China. The first product it is rolling out is an annuity that will be distributed by the major Chinese banks. The insurance company aims to develop more innovative and market-oriented products in the future.
In addition, CBIRC has announced that the Big Four state-owned banks will also roll out pilot programmes for retirement savings products to enrich the suite of pension products.
These actions follow China’s State Council’s official opinion on promoting personal pension schemes that was rolled out in April and details how they will work.
Similar to other markets, China’s third pillar pensions are supplements to the first and second pillars of the pension scheme. Currently, the pension system in China is largely supported by the first pillar’s National Social Security Fund. The second pillar, enterprise and occupational annuities, involve voluntary contributions, but it only covers about 26 million employees, barely 7% of the participants in the country’s overall scheme. Judging from the current situation, the first and second pillars, according to Chinese asset managers that have spoken with The Asset, will not be sustainable.
Like other economies in Asia, China is faced with an aging population. The natural population growth rate in China in 2021 was 0.034%, its lowest ever. As a result, the retired population, according to a report on China’s pensions, is expected to increase by 170 million in 30 years, while the number of participants in the pension scheme will only increase by 70 million during the same period.
Therefore, promoting personal pension schemes is more urgent than ever. Employees, according to the State Council’s opinion, can make annual contributions of no more than 12,000 yuan (US$1,781) into a personal pension account.
A centralized platform that will be used to manage these accounts is undergoing testing, and banks are building and enhancing systems to connect to the platform, according to Chinese banks that have spoken to The Asset. One bank has also mentioned that the taxation of the personal pension is still subject to discussion and official notice.