China Expands Private Pensions Nationwide Despite Challenges
(Bloomberg) -- China is expanding its private pension fund pilot program nationwide to address retirement payout strains. The limitations of the experiment are already on display.
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Disappointing fund performance and a lack of investor interest are just some of the difficulties that private pension funds have encountered after China rolled out the program in 36 cities since 2022.
The program allows workers to contribute as much as 12,000 yuan ($1,650) to tax-sheltered accounts similar to Individual Retirement Accounts in the US. It was created as part of China’s pension reform to address payout strains in a rapidly aging society, where more than 400 million people are expected to be 60 and older by 2035.
When the pilot program was announced, it stirred excitement among global money managers including BlackRock Inc. Citic Securities Co. estimated that the program could amass combined assets of 12 trillion yuan by 2035.
China will roll out the program throughout the country on Dec. 15, according to a statement by the Ministry of Human Resources and Social Security on Thursday.
The government also expanded underlying investment products to include the country’s sovereign bonds and some index funds, according to the announcement. That means some major index-related products, such as those tracking the CSI 300 stock gauge, will garner more long-term investors.
The changes come as China announced it would delay the retirement age starting next year, triggering a backlash.
Often referred to as the third pillar in China’s retirement pension system, the program has run into challenges. More than 60 million people have signed up. But only 22% of participants made any deposits, local media outlet the Paper reported in March.
The funds had combined inflows of 28 billion yuan by the end of 2023, according to official data. Ping An Securities Co. estimated in October that assets more than doubled to 58 billion yuan as of this year.
Growth Questions
Participant growth remains another question. While more than 700 million citizens are now qualified for the program, not all of them can potentially benefit. Only about 67 million Chinese people needed to pay personal income tax last year, and more than 60% of them were just paying 3% — the same as they’ll be charged if they joined the pension plan — giving them little incentive to sign up, according to Ping An Securities.