China’s US$1.5 trillion opportunity: private pension scheme entices Fidelity, Manulife, Invesco, Hong Kong asset managers

Foreign firms are eager to offer products and expertise as China prepares to allow individuals to open personal accounts and choose investment vehicles

Industry insiders discuss how they expect the market to take shape and what factors could impede its development

Reading Time:6 minutes

Published: 10:00am, 18 Jun 2022

David Li, a mid-level executive at a wealth-management firm in Guangdong, knows he cannot rely on his basic government pension, or even on his extra personal investment in retirement insurance, to maintain his standard of living after retirement.

“I feel anxious when talking about retirement,” said the 43-year-old, who worries his pension and insurance might not keep up with inflation.

However, a new option for Li arrived in late April when the Chinese government pushed out a new framework to expand the nation’s private pension scheme. The new option allows qualified employees to set up private pension accounts, for which they will be able to choose from among a menu of investment vehicles.

This so-called third pillar of China’s pension infrastructure joins the first pillar, the compulsory state pension, and the second pillar, voluntary additional contributions by state-owned entities, companies and their workers. The third pillar is seen as vital given China’s rapidly ageing population of 1.4 billion and decreasing birth rate are putting pressure on its existing pension system. Amid predictions that the system could run dry by 2035, China has also signalled that it will increase the mandatory retirement age after holding firm for seven decades.

The plan also creates a market that will be worth around 10 trillion yuan (US$1.5 trillion) by 2030, according to McKinsey & Company. That opportunity – 5.5 times its size in 2020 – has financial-services companies of all stripes, both in China and overseas, preparing to compete.

“The market consensus is that pillar 3 will be a major battleground for players competing in the pension market,” said Charlene Wu, partner at McKinsey. “The ‘make or break’ moment for each type of player is whether it can define its value proposition and play to its strengths.”

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