context: Beijing is determined to sweep away the much criticised ‘decentralised’ BPI administration and ensure citizens from all parts of the country have equal access to BPI benefits. Annuities and personal pension products will serve as ‘incentives’ to reward hard workers and prevent generous pension plans from promoting laziness.

The gross pension replacement rate has declined to a critically low level of 40 percent, and pension management is fragmented at the provincial level, says Yang Yansui 杨燕绥 Tsinghua University School of Public Administration professor. Huge regional disparities in socio-economic development require the central government to carry the responsibility of pension management and merge provincial pension accounts into one national account, says Yang.

As of end 2017, the social pooling account for basic pension insurance (BPI) funds was running a 4 tn surplus, but personal BPI savings accounts were short approximately 10 tn, says Dong Dengxin 董登新 Wuhan University of Science and Technology Institute of Finance and Securities director.

However, Dong argues that deficits will be made up for by transfer of state-owned equity to the National Council for Social Security Fund (NCSSF). According to a November 2017 State Council document, NCSSF received a combined 20 bn payment from three central state-owned enterprises (SOEs) on Mar 2018; two central financial SOEs—People’s Insurance Company of China and China Taiping—also transferred 10 percent of their shares to NCSSF on 7 Jan 2019. China Securities Journal reported on 12 Dec 2018 that a second batch of 15-20 central SOEs have been tapped for the transfer scheme. Local SOEs in Yunnan, Xinjiang and Anhui are also preparing for an equivalent transfer scheme to provincial pension accounts.

NCSSF assets will thereafter become ‘national pension reserves’ (similar to foreign exchange reserves) for paying retirees, says Dong. If all central SOEs can transfer 10 percent of their equity to the NCSSF as planned by 2020, it will add up to 5 tn; together with NCSSF’s own 2 tn of assets and 4 tn surplus from BPI social pooling accounts, national pension reserves will have at least 10 tn, estimates Dong.