context: The basic pension will not be enough to secure aged care since it faces deficits and lacks cross-regional flexibility for collecting benefits while 35 percent of the population live outside of their hukou-registered place of residence. Top-level design for personal pensions takes a huge leap from various commercial pension product pilots since 2018. Considering the high savings rate, the pension investment sector could grow tremendously, especially benefiting wealth management intermediaries.
The personal pension system will fundamentally shift aged-care financing from savings to investments, Hu Jiye 胡继晔 China University of Political Science and Law professor told China News. Personal pensions are designed for people from middle and lower-income groups who often struggle to have savings, says Li Jia 李佳 Pangu Think Tank Ageing Society Research Centre vice-director. They will be pushed to save since funds from personal pension accounts cannot be withdrawn in advance, Li explains.
Although details have not been released, tax benefits will be the biggest attraction. Tax-deferred commercial pension products have been piloted in different localities since 2018, reports Caixin. But only 50,000 participated since benefits were limited and complicated to navigate. Now tax benefits will be directly applied to personal pension accounts to be used to buy various financial products, not just limited to commercial pension insurance. Capping annual contributions at C¥12,000 will also prevent tax evasion.
Moreover, investing through personal pension accounts will be safer since strict supervision can be expected. Investment risks will exist but fraud is unlikely, says Li. Exactly how attractive personal pensions are will depend on further details on tax benefits and the financial products offered. However, people must be careful not to be swayed by insurance companies and finance institutions, warns Li.
As soon as personal pensions fully develop, the size of the funds in the future could be astronomical, says Hu. They will integrate pensions with the capital market and deliver long-term steady funding into the market.