Retirement planning should be more annuities driven, urges Chinese elderly finance group

Less than 7 per cent of employees in China have annuity-based savings schemes

PUBLISHED : Sunday, 19 March, 2017, 6:28pm
UPDATED : Monday, 20 March, 2017, 12:25am

Market watchers are pinning their hopes on further incentives to ignite corporate and household retirement planning in mainland China, as the nation seeks more sustainable ways of financing its greying population.

“We need more cuts in corporate contributions to the state pension system and have more employers build up the annuity sector, which is still in its infancy,” said Dong Keyong, secretary general of China Ageing Finance Forum, who added that figures showed less than 7 per cent of employees in China currently run annuity-based saving schemes.

Annuities and pensions are similar in that both are used for retirement purposes.

However, annuities can also be taken out by individuals for a number of different reasons, whereas a pension is provided by an employer solely for the purpose of retirement. They can also provide a guaranteed monthly income in retirement or to a child or spouse.

Some major state-owned enterprises do offer company annuity schemes whereby employers voluntarily pay extra for retirement coverage on top of the mandatory one as a means of attracting employees, leaving many employees at smaller businesses at a disadvantage.

Premier Li Keqiang promised further “appropriate” cuts on corporate contributions to China’s social welfare funds this year, in his government work report on March 5.

China marginally reduced corporate contributions to China’s state pension, unemployment and health care funds in 2016.

Yet the total social welfare burden imposed on businesses is still viewed as a key factor in eroding China’s traditional labour cost advantages and hampering the ability of businesses paying extra on annuities.

A beefed-up tax relief scheme could be rolled out as early as this year to boost household buying on commercial retirement plans offered by insurers, Dong added.

We need more cuts in corporate contributions to the state pension system and have more employers build up the annuity sector, which is still in its infancy
Dong Keyong, secretary general of China Ageing Finance Forum

Finance ministry spokesman Ou Wenhan said earlier this month that China is ready with a pilot scheme to test how it could allow tax relief for buying commercial retirement plans, but stopped short of providing any timetable.

“The tax relief pilot will have long-lasting influence in helping boost the industry,” said Ye Peng, CFO of Changjiang Pension Insurance, noting he hopes the trial could be rolled out soon.

Andy Ng, EY’s greater China insurance leader, is also optimistic of the prospects of a successful trial.

“The sector could help nurture China’s capital market as retirement plans are aimed at long-term returns,” he said. “Such funds mainly invest in blue chips and can help bolster China’s notoriously speculative capital market.”

But insurers still need to improve their products and services before any such policy becomes reality.

“Insurers need to strengthen their investor education, diversify products and offer more value-added services in pitching retirement-planning products to clients,” said Xie Shuzhen, deputy general manager of life insurance at huize.com, an insurance marketplace.

She said a tax relief trial still face challenges including uncertainties in China’s individual tax regime reform.

No matter what, improved retirement preparation is urgently needed in an ageing China, she said.

By 2020, the country’s population aged above 60 is projected to grow to 255 million, accounting for 17.8 per cent of the total, according to data from the State Council.

In Shanghai, the nation’s most populous city, 30.2 per cent of the population in 2015 was aged above 60.

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