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China’s reform of its pension scheme is vital given its rapidly ageing population and declining birth rate, which are putting pressure on the existing system. Photo: AFP

HSBC, AllianzGI, Manulife, Prudential eye China’s US$1.5 trillion private pensions as Beijing cuts industry shackles in world’s fastest-ageing economy

  • China’s private pension market is estimated to be worth around 10 trillion yuan (US$1.5 trillion) by 2030, according to McKinsey & Co
  • The CBIRC publishes rules that would allow large insurers to take part in the scheme, as long as they meet certain criteria
Insurance

HSBC, Allianz Global Investors and Manulife Investment Management are among some of the biggest international players keen to capture China’s private pension business after regulators announced rules for reforming the US$1.5 trillion market.

China broadened its private pension scheme, allowing large insurance companies to offer individual retirement products to meet the needs of a rapidly ageing population, according to an announcement by the China Banking and Insurance Regulatory Commission (CBIRC).

The liberalisation of the market puts insurers in the position to join banks and wealth management firms in the private pension market, valued at around 10 trillion yuan (US$1.5 trillion) by 2030, according to McKinsey & Co.
Insurance companies that want to offer private pension products must have at least 5 billion yuan in shareholders’ equity, with a solvency margin ratio not less than 150 per cent and core solvency ratio not less than 75 per cent, the CBIRC said in its statement issued late on Tuesday.

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China tackles challenges posed by its ageing population

China tackles challenges posed by its ageing population

The CBIRC wants to ensure that only large insurers with strong financial capability and experience can participate in China’s private pension market. Any applicant must be well managed, with good governance records free of any disciplinary action for the past three years.

As an incentive, the 5 billion yuan equity requirement for some well-managed pension companies may be waived, the CBIRC said.

Insurance companies can offer a wide range of products, including annuity or other insurance-based retirement plans, as long as the insured period is five years or longer, the regulator said.

China’s state pension fund to run dry by 2035 due to one-child policy

The CBIRC’s rules for insurers follow those for banks and wealth management companies introduced last Friday. With Tuesday’s announcement, the stage has been set for all financial firms to launch their private pension scheme products.

This marks the final step of a reform plan announced by Beijing in April which allowed qualified employees to set up private pension accounts at banks, wealth management firms or insurance companies and invest in a wide range of pension investment products.

This so-called third pillar of China’s pension infrastructure joins the first two pillars – the compulsory state pension and voluntary additional contributions by state-owned entities, companies and their workers.

The third pillar is seen as vital given China’s rapidly ageing population and declining birth rate, which are putting pressure on the existing pension system. Around 28 per cent of China’s 1.4 billion population will be more than 60 years old in two decades’ time, up from 18 per cent currently, according to the World Health Organization.

HSBC, the biggest bank in Europe and Hong Kong, is among the international insurers that have set their sights on China’s new private pension market.

“As the leading life and pensions provider in Hong Kong, and with a wholly owned insurer in mainland China, we fully support further opening up of the pensions market in the mainland,” said Edward Moncreiffe, CEO of HSBC Life Hong Kong.

“Our integrated bancassurance model also allows us to develop and offer integrated insurance and banking propositions to cater to the entire continuum of customer needs from wealth protection, accumulation to retirement planning.”

Allianz Global Investors (AllianzGI), part of the German insurer Allianz Group – the first foreign insurer to set up a wholly-owned holding company in Shanghai three years ago – has worked closely with mainland regulators to share its global experience in designing pension products and investor education.

The logo of the insurer Allianz SE on its building in Puteaux at the financial and business district of La Defense outside Paris on May 14, 2018. Photo: Reuters.

“We are delighted to witness the recent progress in China’s pension system, especially with regards to individual pension schemes,” said Leo Shen, head of fund management business of China of AllianzGI. “China is on the right track towards a healthier and more sustainable pension system.”

“The private pension reform will provide compelling opportunities for global asset managers with long histories in the retirement market like AllianzGI, as they possess global track record and local expertise on the ground,” he said.

Fidelity International said the introduction of China’s private pension scheme offers a great opportunity for the US financial firm.

“The pension fund market’s growth is a long-term trend as the overall population continues to age,” said Lily Cong, the chief representative of Fidelity’s Beijing representative office. “Fidelity has had continuous investor education that encourages long-term investments, which will also play a vital role.”

Manulife Investment Management, the asset management arm of Toronto-based insurer Manulife Financial Corporation, is also eyeing opportunities in China’s private pension market.
An elderly couple in front of the Drum Tower in Beijing on Nov. 25, 2020. Photo: Simon Song
The company on Monday became the first foreign asset management company to receive government approval to convert its joint venture into a fully owned company.

“Our number one focus is on the retirement needs of Chinese households,” said Michael Dommermuth, head of wealth and asset management in Asia at Manulife Investment Management, adding that it will provide mainlanders with investment vehicles to help generate income to meet their retirement needs.

“China is one of the most rapidly ageing nations on Earth and the pension reserves that China has at present are insufficient to cover that ageing population,” he said. “Too much money is invested outside formal pension systems into bank deposits.”

Prudential will make retirement funding products more accessible to more customers through Citic-Prudential Life and its partners in more than 90 cities, said Lilian Ng, managing director of the London-based insurer.

“We recognise the growing demand for financial security from China’s rapidly ageing population,” she said. “The recent announcement offers more details on the operations and tax incentives for employers, employees and the financial service industry to participate in China’s personal pension scheme.”

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