In Depth: China’s Pension Finance Push Falls on Deaf Ears

Since the Chinese government prioritized bolstering retirement finance last October, two key issues have emerged: the lack of enthusiasm for personal retirement accounts and the tepid response from financial institutions to expand lending to the elderly care sector [para. 1][para. 2][para. 3].

Wang Hongdong, a general manager at China Citic Bank, emphasized the necessity for comprehensive retirement planning over mere product selling due to longevity, low interest rates, and aging populations with fewer children [para. 4]. China has over 300 million people aged 60 and above, a number expected to exceed 400 million by 2040 [para. 5]. Consequently, the government has identified retirement finance as one of the nation's top five financial priorities, urging banks to establish specialized committees and strategies for pension finance [para. 6].

In China’s three-pillar pension system, banks manage accounts, investments, and financing for the senior care sector [para. 7]. Effective pension finance service delivery involves cross-departmental and cross-functional collaboration among various bank segments, including retail, corporate businesses, and financial markets [para. 8]. Several banks have taken steps to set up pension finance committees or flexible working groups to manage these tasks [para. 9].

For instance, China Construction Bank launched its Jianyang’an pension finance brand with 60 outlets [para. 10], while China Everbright Bank and the Bank of China also announced ambitious pension finance strategies [para. 10]. Other major banks like Industrial and Commercial Bank of China (ICBC) and Agricultural Bank of China have followed suit [para. 11].

Commercial banks' role in the basic and employer-sponsored pension systems is limited due to historical and policy restrictions, primarily acting as investment managers or custodians [para. 13]. Large banks such as ICBC have more extensive qualifications and manage significant portions of social security and enterprise annuity funds [para. 14]. The third pillar, personal retirement accounts, offers significant potential and is gaining traction [para. 15].

As of January, the government planned to implement the personal pension fund program nationwide, offering tax incentives for contributions up to 12,000 yuan annually per account [para. 16]. Despite over 50 million personal accounts being set up, only one-fifth contributed by mid-2023, with an average contribution of 2,000 yuan, far below the maximum limit [para. 17]. This "hot account opening and cold deposit" phenomenon is attributed to aggressive bank marketing and poor investment returns [para. 18][para. 19]. Many personal pension funds reported losses in 2023, causing low engagement [para. 22].

Shifting from product selling to comprehensive financial advising is crucial, with 18 billion yuan contributed to personal pension accounts by March 2023 [para. 24]. A significant portion remains uninvested due to a lack of professional investment guidance [para. 25]. As a result, Chinese savers often prefer traditional savings accounts over personal pension plans [para. 26].

In the senior care sector, banks are hesitant to lend due to the lack of a clear industry definition, asset-light business models, and insufficient collateral [para. 28][para. 30]. While insurance funds have invested in elderly care, banks remain cautious [para. 31]. The government has released a statistical classification for elderly care, but it remains too broad, causing confusion in categorizing loans [para. 32]. The central bank is working on clearer standards [para. 33].

Despite these challenges, banks like Agricultural Bank of China and China Construction Bank are pledging increased support and investment in high-quality elderly care services [para. 34]. The industry’s asset-light model complicates long-term debt support, requiring innovative financial solutions [para. 36]. A distinct financial model for elderly care, focusing on public welfare, is suggested to better address sector needs [para. 38].