Shanghai tipped for pilot pension taxation project
Beijing is likely to launch deferred taxation for pension insurance and corporate annuities this year and will probably pick Shanghai for a pilot project in a bid to boost the pension pool in the fast-ageing country.
The tax stimulus, which the government has been discussing since 2009, is expected to be launched by the end of this year, the China Securities Journal reported yesterday, citing unnamed sources.
Under the new tax system, insurance premium and annuity outlays for employees will be deducted from their taxable income until retirement but the amount will be taxed after they retire. As retired people are usually subject to lower tax rates, the more people set aside for annuities and pension insurance, the more they will save by way of lower tax payments when they start receiving the pension payouts.
The beefing up of the pensions, which could supplement the inadequate social security fund, is expected to bolster the domestic equity and bond markets by supplying long-term investable capital.
Michelle Zhou, a tax director of KPMG China, said: 'The reason behind this is mainly because the existing tax regime does not encourage individuals or their employers to contribute more than the mandatory amounts required under the social insurance law.
'The tax stimulus will promote the concept of retirement savings and attract more investments into the capital markets,' she said.
Faced with the mounting pressure of supporting a rapidly ageing population, the mainland is considering raising the retirement age. The gap between future liabilities and assets of pension funds under government management is estimated by some economists at 68.2 trillion yuan (HK$83.7 trillion) by 2033, or 38.7 per cent of the projected 2033 gross domestic product.
China had three trillion yuan in social security funds at the end of last year, with 85.5 per cent of it sitting idle in government bank accounts, receiving meagre savings interest rates, and the rest invested in bonds, stocks and other assets.
The National Social Security Fund, which manages the country's biggest pension fund of 860 billion yuan, returned just 0.8 per cent last year. Mainland insurance companies reported a 3.6 per cent investment return.
The mainland's corporate annuity system is anaemic and only 45,000 companies have annuity arrangements covering a total of 1.5 million employees, or less than 1 per cent of the nation's working population. The annuity size was 350 billion yuan at the end of last year.
8.9%
The proportion of the mainland's population aged 65 and over•Life expectancy at birth is 74.84 years
