Caixin
Dec 07, 2016 06:25 PM
POLITICS & LAW

China to Allow Provincial Pension Funds to Invest in Stock Market

(Beijing) — China is preparing to allow money from provincial pension funds to be invested in the stock market to increase returns for retirees at a time when the country's population is aging.

After a review of more than a month, the National Council for Social Security Fund (NCSSF) said it had selected 21 investment firms to manage the pension fund money that is expected to flow into China's stock markets.

Money for retirement pensions are one piece of the social insurance funds collected from companies and individuals through payroll deductions at the local level. Social insurance funds also include money for medical insurance, employment injury insurance, unemployment insurance and maternity insurance.

As of the end of 2015, the nation's provincial pension funds reached 3.99 trillion yuan ($564 billion), an increase of 12% compared with a year earlier, according to the annual reports of the Ministry of Human Resources and Social Security.

In August 2015, the State Council, China's cabinet, issued a regulation that allows provincial governments to transfer part of their pension funds to the NCSSF, which has more expertise in making riskier investments. Thirty percent of the funds could be allocated to stocks.

Guangdong became the first province to entrust 100 billion yuan of pension funds to the NCSSF in a pilot program in 2012, followed by Shandong province, with 50 billion yuan. The total returns of the funds commissioned by Guangdong reached 31.43 billion yuan by the end of 2015, while the funds assigned by Shandong generated a return of 3.7 billion yuan, according to the NCSSF annual report.

Analysts from China Securities said that no more than 500 billion yuan is expected to be invested in the stock market in the first wave because local governments need cash to make current pension payments.

The NCSSF now oversees 1.5 trillion yuan in social security funds. It has generated a total return of nearly 790.8 billion yuan since it was founded in 2000, with an average annual return rate of 8.82%.

The social security fund operated by the NCSSF is mainly a government reserve to supplement local social welfare expenses, such as the pension funds, in case the aging population reaches a peak.

Analysts from China Investment Securities said the flow of pension funds to the stock market would boost the investor confidence because of its conservative investment style.

Contact reporter Dong Tongjian (tongjiandong@caixin.com)

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