context: Pension submissions were only withheld by employers and centrally managed by the state. Opening up personal pension submissions will not only alleviate the financial burden on companies but create more funds for financial markets. But even if individuals are willing to participate, this initiative may end up as another Ponzi scheme that exhausts the life savings of households.

Dong Dengxin 董登新 Wuhan University of Science and Technology clarifies misunderstandings about three aspects of personal pension funds, namely regarding

  • qualifications: 710 million people are eligible for and can submit basic pensions, excluding those who are not entering the labour market and are already claiming benefits
  • funding source: the submissions can only be labour wages; non-labour income is not qualified
  • quotas: the highest annual limit is 12,000; while some worry that this is not enough to attract the high-income group, personal pension mostly targets middle-to-low-income groups based on the design in other countries

Dong further clarifies the investment of personal pension funds

  • the funds cannot be directly used to trade stocks
  • there are strict restrictions on the type of investment products; there are three sets of qualified products
    • standardised, target products for pension funds
    • non-standardised products developed by investment funds, insurance companies, commercial banks, asset management companies and security companies
    • other financial products like bank deposits, mutual funds and other asset management products
    • all these products must be verified by the CSRC (China Securities Regulatory Commission)
    • personal pension funds are most likely to be managed collectively, rather than allowing speculation by individuals

Dong emphasised the influence of personal pension funds on capital markets, including

  • incentivising the innovation, talent reserve and investor education of financial institutions
  • motivating a shift of household investment from short-term speculation to long-term wealth management
  • individual investors will retreat from participating in the stock market trading and instead rely on institutional investors