context: With a massive ageing population, developing a more comprehensive third pillar (commercial) pension insurance system is urgently in need. Since the first national Opinions on promoting the development of personal pensions in 2022, a Notice on vigorously developing commercial insurance annuities was introduced by the National Administration of Financial Regulation on 23 October, formally defining commercial annuity insurance and outlining future policy directions.
Previously, the third pillar products offered by insurance companies mainly included personal pension schemes with tax benefits and commercial pensions developed by specialised pension insurance companies. In comparison, the scope of commercial annuities has been expanded by the new Notice to include five product categories
- personal pension products
- annuity insurance
- endowment insurance
- exclusive commercial pension insurance
- commercial pensions
In terms of the supply of commercial insurance annuity products, NAFR (National Administration of Financial Regulation) reported that insurance companies have accumulated over C¥6 tn in pension funds, covering nearly 100 million people.
A wealth management executive from a leading pension insurance company stated that
- commercial insurance annuities will benefit pension insurance firms
- subsequent detailed policy implementation is expected, especially in
- broader product offerings
- simplified account structures
- more favourable preset interest rates and fees
- increased participation from the general public in pension finance
These guidelines aim to help insurance companies leverage their actuarial expertise, develop long-term products and manage funds effectively
- it is an opportunity to address shortcomings in the third pillar pension
- there will be a strong push to develop commercial insurance annuities further and continuously improve products and services
- the goal is to build a trustworthy industry brand for the public
The insurance industry is a crucial participant and primary supplier of third pillar pension, defining the scope of commercial annuities clarifies industry focus and will help guide insurance companies in their roles within the third pillar, explains Chen Hui 陈辉 Central University of Finance and Economics China Actuarial Science and Technology Laboratory director.
Since the pilot program launched in January 2023, over 590,000 commercial pension accounts have been opened. China Life Insurance has reported that by the end of 2023, the total scale of its commercial pension accounts had reached C¥8 bn, with over 340,000 effective accounts.
The key to developing the third pillar of pension is whether market participants can provide financial products that truly meet the needs of the public, says Ye Haisheng 叶海生 Guomin Pension Insurance chair.
He notes that the demand for pension financial products is diverse, with the primary concerns being safety, profitability and liquidity. Commercial pensions offer a well-balanced solution for these needs through an innovative structure of ‘accounts + products’. Guomin Pension is focusing on commercial pensions as a key development area.