And the vast majority of participants have been reluctant or unable to contribute the maximum amount allowed, suggesting that those who are convinced to sign up are doing so with caution.

“Each of us is required to identify and persuade two clients to open private pension accounts every day, but it is difficult to achieve,” said Zheng, an account manager at a sub-branch of a state-owned bank in Jiangmen, a third-tier city in southern Guangdong province.

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The private pension fund was launched last November to address holes and shortcomings in the current pension system that has become increasingly strained. The new option allows citizens covered by the basic national pension scheme to contribute up to 12,000 yuan (US$1,650) a year toward a retirement account, while deducting any contributions from their annual taxable income.

All Chinese citizens covered by basic pension insurance for urban employees, or by basic pension insurance for urban and rural residents, are eligible to take part.

They can invest in a select set of financial products that differ among banks – with 680 products in total, including deposits, stocks and wealth-management tools that are all approved by financial regulators.

But the annual per capita contribution has been around 2,000 yuan – far from the ceiling of 12,000, according to official data.

Jiangmen aside, the 36 participants comprise mainly top-tier cities or provincial capitals, though the scheme is expected to be expanded to more cities soon, supplementing the current pension system: the basic state pension and annuities sponsored by employers.

The private pension fund evolved out of concerns that the urban-worker pension fund – the backbone of the state pension system – may run out of money as soon as 2035, due to a decline in China’s workforce.

In the absence of official figures, a McKinsey report in 2019 estimated that only 20 million employees were covered by employers’ annuities – mainly those working for state-owned firms – and the total accounted for only a small fraction of China’s total workforce.

There were 1.05 billion participants in the basic national pension scheme – including urban and rural areas – as of the end of 2022, marking an increase of 24.30 million from the previous year, according to official data.

Li Ge, deputy general manager of financial products at Huatai Securities, pointed to a recent survey of 300 people working for Huatai in Nanjing, aged between 20 and 30, that found less than 20 per cent were willing to participate in the new private pension fund scheme.

“This group [in their twenties and thirties] should potentially be the most targeted [for the private pension fund] … but their enthusiasm is not high,” Li said at a forum organised by Shanghai Jiao Tong University in September. “The participation rate is very low.”

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Thomas Pixley, general manager of Charles Schwab’s Shanghai office, said at the same forum that the new pension scheme should have a positive impact on both individual investors and the investment market, but it will take time to educate investors to recognise and accept that.

Drawing similarities to individual retirement accounts (IRAs) in the US, which were introduced in 1974, Pixley said it took years until it really started to grow in the late 1970s and early 1980s.

As of the end of June, a total of 40.3 million private pension accounts had been opened at commercial banks and designated financial institutions across China, according to official data, with the aforementioned average contribution of around 2,000 yuan.

And more than 30 per cent of the funds were sitting idle in people’s accounts, according to a Xinhua report in September. About 60 per cent of the funds had been used to purchase fixed-term interest-bearing deposits with a fixed date of maturity.

Liu Wei sees the value in using the private pension fund, but she is still approaching it with fiscal prudence.

“My purpose is to force myself to save money. In addition, it can lower my personal income tax,” said Liu, an operations director at a foreign firm in Shenzhen, who said she did receive a tax refund for last year.

However, Liu has no intention of investing in financial products, which she believes will lose value in the coming months. She’s been burned before, losing big on stock and mutual fund investments.

“There are no investment opportunities in the domestic market that don’t lose money. For an ordinary Chinese person, honestly speaking, there are almost no investment products that can preserve the value of money now,” she said. “Properties, stocks, mutual funds, insurances – none of them.

“Most of my colleagues with high incomes have paid into the private pension scheme, but other young middle-income colleagues like receptionists are just not interested. We did some homework and found it would be only cost-effective for those stably earning more than 8,000 yuan a month.”

Many who made their first private pension contributions in mutual funds have suffered losses in the past year.

As of October 16, the average return on 133 private pension funds for which statistics are publicly available was negative, down 2.29 per cent since the start of the year, according to Choice, an information service provider owned by financial media firm Eastmoney.com.

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The National Council for Social Security Fund, which runs the state pension fund, reported a gain in 2022 of 0.33 per cent, or 5.1 billion yuan, down from a 4.9 per cent gain in 2021.

It said the drop was due to turbulence in global financial markets and geopolitical tensions. Domestically, the Shanghai Composite Index fell 15.1 per cent last year, similar to the 15.5 decline in Hong Kong’s Hang Seng Index and worse than a drop of 8.8 per cent for the Dow Jones Industrial Average.

China’s private pension scheme has emerged as Chinese investors are reshaping their financial management values, said Xiao Wen, the CEO of Yingmi Fund who also spoke at the Shanghai forum in September.

“There are no more of the high-yield, short-term, rigid redemption products that Chinese investors were used to,” she said.

And Chinese clients are growing more risk-averse when it comes to investing in financial products, amid the weak market and sluggish economic growth, Xiao added.

Yvonne Su, a white-collar worker in Guangzhou in her early forties, is contributing the maximum amount to her private pension fund. And she is also sticking with term deposits.

Based on her calculations, “while there will be back taxes owed on withdrawals after retirement”, she expects to see annual returns of about 7 per cent a year.

Economists and financial institutions say that greater efforts must be undertaken to educate the public on the private pension scheme, and some suggest bigger tax breaks are needed to stimulate interest.

Meanwhile, many workers are simply unable to set aside any money in long-term savings when they are currently living paycheck to paycheck.

“I have no plans to contribute to the so-called private pension accounts, and I think most people like me can’t make ends meet,” said Zhang Liang, a truck driver from Hubei province. “It’s a struggle to meet daily expenses, and there’s not a penny to spare.”

Additional reporting by Mandy Zuo