China population: a private pension plan is coming, but will people carve out a piece of their savings?
- For the first time ever, tax deductions will be available on personal pension contributions, to encourage participation in the coming private pension system
- Private scheme will be rolled out with one-year trials in some cities before being implemented nationwide
Employees can contribute up to 12,000 yuan (US$1,863) per year to their pension fund under the new scheme, the government said on Thursday in a policy document published online, compared with a fixed payment by both employees and employers under the state pension plan.
The government will adjust the maximum contribution allowed under the new plan, according to economic conditions.
The scheme will be rolled out with one-year trials in some cities before being implemented nationwide, according to the document.
To encourage participation in the private pension system, tax deductions will be available on personal pension contributions for the first time.
The securities regulator on Thursday hailed the new scheme, saying it will waste no time in making rules to facilitate pension investment by mutual funds.
Capital markets can help preserve and increase the value of pension funds, to proactively tackle the challenges of an ageing society, the China Securities Regulatory Commission (CSRC) said in a statement on its website.
Meanwhile, pension money “can provide more long-term and stable funds to develop the real economy, via capital markets”.
The private pension accounts will be opened at commercial banks and designated financial institutions.
Funds held in the accounts can be invested in certain financial products, such as wealth-management banking products, deposits and public funds. And investors must bear the corresponding risks, according to the document.
Those who will be eligible for the scheme include urban employees who already contribute to their basic pension insurance under the state social security system.
If private pension holders die, the assets in their accounts can be bequeathed.
Independent consultancies estimate that the private pension market will grow to at least US$1.7 trillion by 2025, from US$300 billion currently.
China needs to strengthen diversified pension insurance, due to its ageing population, said Nie Wen, an economist with Shanghai-based Hwabao Trust.
In just 20 years, 28 per cent of China’s population will be more than 60 years old, up from 10 per cent now, making it one of the most rapidly ageing populations in the world, according to projections cited by the World Health Organization.