context: The three pillars of China’s pension system are ‘public pension’ (paid by the government), ‘occupational pension’ (paid by employers) and ‘personal savings pension’ (paid by individuals). Occupational pensions constitute 20 percent of the system, making that contribution among the largest globally.

Central government is now experimenting with commercial endowment insurance to compensate for the shortfall in contributions made by personal savings, employing a tax-deferred model. On 6 July 2018, China Banking and Insurance Regulatory Commission (CBIRC) released ‘Interim measures on capital management of tax-deferred commercial endowment insurance’ and the second batch of 16 entitled operating insurance companies. The announcement followed an initiative in April 2018 by Ministry of Finance, CBIRC and three other ministries, who jointly issued ‘Notice on unfolding pilots on tax-deferred commercial endowment insurance’, directing Shanghai, Fujian province and the Suzhou Industrial Park Zone to undertake a one-year pilot.

Yang Yansui 杨燕绥 Tsinghua University Employment and Social Security Research Centre dean estimates that ‘the third pension’ source could develop into an enormous market in the long run as more products emerge but will encounter many obstacles in the short term, according to a report in Yicai. Many analysts believe the slow progress in encouraging personal income tax incentives accounts for the delay of tax-deferred practices, although, according to Yicai, some insist that the effects of income tax incentives are overestimated.

Experts believe that only about 30 million Chinese are paying income taxes because of loopholes in supervision. Moreover, the drafted amendments to the ‘Personal Income Tax Law’ currently out for comment will raise the personal income tax threshold from 3500 to 5000 per month, meaning fewer residents will be required to pay. Dong Dengxin 董登新 Wuhan University of Science and Technology professor believes that in such conditions tax-deferred pension insurers will have to rely on investment performance to improve their attraction to consumers and their contribution to the national pension system.