It’s no secret that an aging population is a major concern for Chinese planners. But for the world’s largest banks and insurers, China’s creaking demographics are creating a ‘sunrise industry’ that few can resist.
According to data from the seventh national census, which was published last year, people aged 60 or more now account for 18.7% of the total population, or 5.4 percentage points more than in 2010. That means 264 million people – more than twice the population of Japan – are at retirement age or close to it.
That’s why in the work report presented to the 20th CPC National Party Congress last month – where the political elite communicates its policy priorities to the lower ranks – there was mention of a “multi-tiered social security system”, including coverage for older people.
Earlier this month, several authorities including the China Banking and Insurance Regulatory Commission (CBIRC) and the Ministry of Finance also published an implementation plan aimed at pushing ahead with the development of the country’s pension system.
Under the new rules, workers covered by the state pension system can also join private pension plans. Those who wish to do so would still need to register an individual retirement account with the state-run social security platform first, however, before opening a private pension account at an authorised financial institution.
Individuals will be allowed to contribute up to Rmb12,000 ($1,676) per year to their individual retirement accounts under the new system. Payments can be made monthly, yearly or by other instalment plans and the contributions will be tax-deductible. The tax rate on eventual withdrawals will be only 3%.
The guidelines will complement another reform announced in April by the State Council on the development of a private pension system. The existing state pension scheme, which consists of a basic state pension fund and a voluntary scheme in which employers and employees make monthly contributions, is expected to cover more than 95% of the population.
But it is still deemed insufficient by planners in addressing the challenges arising from demographic changes.
The reform process gathered pace this month with the launch of the new guidelines. Most importantly, the CBIRC has identified the financial institutions that will participate in the private pension scheme, as well as the kind of investment products that can be sold to individual clients.
The eligible group of companies in the new pension plan includes national banks with net tier-1 capital of more than Rmb300 billion and “strong prudential frameworks”, city commercial banks with “strong cross-regional service capacities” and wealth management firms, which have also been included in a series of pilot schemes.
In practical terms this favours some of the largest state-run lenders (although applicants must have avoided disciplinary action from regulators in the last three years).
This week ICBC was the first to test the water, although only its own staff and their family members will be allowed to participate in its private pension offering during the trial period.
It’s still unclear whether foreign banks or insurers will get the nod to offer their own services to the private pension market – an industry segment that is expected to reach Rmb10 trillion by 2030, according to consultancy McKinsey.
According to a list of approved pension fund products also published by the CSRC (the securities regulator) this month, which includes 129 products from 40 fund companies, foreign financial firms and their China joint ventures are in the mix, however.
At a financial industry conference last week, Liu Fushou, chief risk officer at the CBIRC, reiterated that it is established policy to open up the financial markets and attract new investment from foreign firms.
The CBIRC would continue to encourage foreign financial institutions to invest in China’s wealth management and pension industry, and compete fairly with local firms, he assured.
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