How to Get People to Use Their Personal Pensions (AI Translation)
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文｜财新周刊 武晓蒙 岳跃
By Caixin Weekly's Wu Xiaomeng and Yue Yue
“你开通个人养老金账户了吗？没开的话赶紧开！”近日，在北京上班的“95后”小王接到了东北老家亲戚的电话，说当地各大银行正在搞促销，只要开户即可领取大礼包并参与抽奖。与此同时，社交平台上各种版本的银行开户“薅羊毛”攻略热度陡升，成为近期一大讨论话题。
"Have you opened a personal pension account yet? If not, hurry up and open one!" Recently, Xiao Wang, who works in Beijing and was born after 1995, received a call from a relative in his Northeast hometown. The relative mentioned that major local banks were running promotions, offering generous gift packages and lottery opportunities just for opening an account. Simultaneously, various guides on social media platforms detailing how to maximize these bank promotions have surged in popularity, becoming a major topic of discussion lately.
上述现象的背景是，个人养老金制度在36个城市（地区）试点两年后，正式向全国推广，商业银行新一轮账户争夺战打响。
The background of the aforementioned phenomenon is the formal nationwide rollout of the individual pension system after a two-year pilot in 36 cities (regions). This has set off a new round of fierce competition among commercial banks for accounts.
2024年12月12日，人力资源和社会保障部（下称“人社部”）、财政部、国家税务总局、国家金融监督管理总局、证监会联合发布的《关于全面实施个人养老金制度的通知》（下称《通知》）称，自2024年12月15日起，在中国境内参加城镇职工基本养老保险或者城乡居民基本养老保险的劳动者，均可参加个人养老金制度；同时，个人养老金税收优惠政策的实施范围，同步从先行试点城市扩大至全国。
On December 12, 2024, the Ministry of Human Resources and Social Security, along with the Ministry of Finance, the State Administration of Taxation, the National Financial Regulatory Administration, and the China Securities Regulatory Commission, jointly issued the "Notice on the Comprehensive Implementation of the Individual Pension System" (hereinafter referred to as the "Notice"). The Notice states that, starting from December 15, 2024, workers in China enrolled in the basic pension insurance for urban employees or the basic pension insurance for urban and rural residents can participate in the individual pension system. At the same time, the coverage of the individual pension tax incentive policy will be expanded nationwide from the initial pilot cities.
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- China's nationwide rollout of the individual pension system has spurred competition among banks offering promotional incentives to customers opening accounts.
- The system aims to bolster retirement readiness through a "three-pillar" structure, with initial trials revealing issues like low contributions and participation.
- Efforts to enhance participation include expanding investment options, providing tax benefits, and considering new withdrawal regulations, while future improvements may involve better investment advisory services and tax incentive reforms.
The expression of a renewed optimism towards personal pensions among Chinese workers, amid a nationwide push by financial institutions to attract account holders, provides the groundwork for the complexities and potential of China's pension system. [para. 1] In recent news, promotions from local banks for opening personal pension accounts have drawn widespread attention, thanks largely to strategies offering attractive incentives like gift packages and lotteries. [para. 2] This drive is backed by the official implementation of China’s nationwide individual pension system, following a two-year test run in various cities. [para. 3]
The Ministry of Human Resources and Social Security, along with other financial regulatory bodies, issued a "Notice" for the rollout, effective from December 15, 2024, enabling all workers under basic pension insurance to participate. This marks a significant expansion from the initial pilot. Other key changes in China's pension policy include the broadening of product options to include treasury bonds and the adoption of certain "default investment services," which are based on an understanding of participants' investment profiles. [para. 4]
Originally, the pension system in China consists of a "three-pillar" approach: the first pillar being government-led basic pension insurance, the second pillar being occupational pensions, and the third being individual contribution-based pensions. The pilot for implementing individual pensions was first executed in 2022, introducing an annual contribution limit of 12,000 yuan for participants, with attached tax benefits. However, despite initial fervor in account openings, participation waned significantly due to low contributions and an underwhelming interest in investment though the pilot phase. [para. 5]
By November 2024, approximately 72.79 million accounts had been opened, yet only about 22% of account holders were active contributors with an average contribution of around 2,000 yuan. Furthermore, only a fraction of these contributors engaged in the investment, showing a preference for basic saving products failing to engage significantly with the capital market through public mutual funds. [para. 9] The relative unattractiveness of the existing tax incentives for personal pension accounts in the Notice is maintained, despite growing industry calls for reform. [para. 12]
Marketing strategies for pension accounts have evolved since the pilot. Banks are now focusing on contribution amounts as part of promotional efforts, reflecting a shift towards encouraging not just account openings but also more substantial engagement from participants. Existing products under the pension scheme are growing, with 107 new entries after recent policy adjustments, reflecting the necessity to address stakeholders' varied investment appetites more comprehensively. [para. 20]
Nevertheless, the system continues to experience challenges, with many pension products unable to deliver competitive returns. A survey shows significant performance issues, with nearly 70% of fund Y shares reporting losses and an average annualized return of -3.23%. Consequently, both participants and financial professionals recognize that enhancing the quality and types of pension products, including incorporating index funds and expanding investment options, is crucial. [para. 30]
Informed by successes in other economies, there’s potential for refining investment experiences through default investment services, potentially involving curated product recommendations based on individual risk preferences and age categories. Such measures could follow the Qualified Default Investment Alternative (QDIA) system in the US, improving engagement and wealth accumulation. [para. 40]
Moreover, the loosening of withdrawal protocols (allowing early withdrawal under specific conditions such as major illness and unemployment) serves to alleviate one primary concern among participants hesitant to contribute due to rigid withdrawal terms. [para. 60] Although no immediate changes to tax policies were made, the discussion continues on evolving potential models like EEE, which might entice broader participation by improving the tax attractiveness of pension contributions. [para. 80]
Ultimately, while the individual pension system remains underdeveloped, ongoing reforms and improvements highlight the importance of facilitating a more effective, flexible, and inclusive pension environment in China, encouraging personal financial planning for retirement. The government's undertaking to expand pension products and explore potential improvements in investment advisory services also mirrors a worldwide trend for robust policy frameworks supporting retirement savings. [para. 90]
- Industrial Securities Research
兴业研究 - The article mentions Industrial Securities Research, noting their view that allowing second and third pillar pension funds to invest in more diverse assets like gold, local bonds, and government financial bonds could enhance investment attraction.
- Soochow Securities
东吴证券 - The article cites a perspective from Soochow Securities, which suggests that in the long term, increased pension investment and a shift towards equity asset allocation are inevitable trends in China due to changing demographics. This shift is expected to support the growth of passive index funds as a significant source of capital.
- Ping An Bank
平安银行 - According to the article, Ping An Bank has been part of the personal pension scheme trial but has not yet started offering commercial pension insurance products. The bank is among several that, during the two-year trial period, have not fully stocked their offerings compared to others, which have included various categories such as public funds and insurance products.
- China Zheshang Bank
浙商银行 - China Zheshang Bank, during the personal pension scheme pilot phase, had not yet launched public fund or insurance products as part of its personal pension offerings. Despite being part of the initial list of institutions permitted to handle personal pension business, the bank lacked full coverage of pension product types compared to other banks in the pilot program.
- China Bohai Bank
渤海银行 - China Bohai Bank is mentioned as one of the banks that have not yet offered public mutual funds and insurance products as part of their personal pension services. Despite being part of the pilot projects, they have only provided fund account and deposit transaction services.
- Hengfeng Bank
恒丰银行 - According to the article, Hengfeng Bank currently only offers personal pension fund accounts and savings deposit transactions, lacking the full range of personal pension products such as commercial pension insurance and mutual funds, even after two years of pilot implementation.
- Bank of China
中国银行 - The Bank of China released a "Personal Pension Asset Allocation Plan" following the nationwide promotion of the personal pension system. For cautious clients, they recommend fixed deposits, while for clients under 50, they suggest "wealth management + insurance." For clients over 50, they propose "fixed deposits + insurance," and for balanced clients, a mix of "funds + wealth management + insurance" is recommended, with product variations based on age.
- Ping An Securities
平安证券 - Ping An Securities' report mentions the U.S. IRA system, highlighting features like "hardship withdrawals" for major financial crises before retirement age without a tax penalty. It suggests learning from such features for China's individual pension system to provide better flexibility and support, encouraging participation.
- Southern Fund
南方基金 - Southern Fund, in its 2024 report, suggests that expanding individual pension investment options to include annuity products could enhance participants' experiences. It argues that annuity products, managed by qualified and experienced institutions, offer high-quality investment management. The report also recommends allowing institutions with annuity investment qualifications to provide dedicated personal pension products to their annuity clients, leveraging their deep understanding of clients' risk preferences and organizational capabilities.
- November 2022：
- The 'Implementation Measures for Individual Pensions' were first piloted in cities such as Beijing, Shanghai, Guangzhou, and Chengdu.
- By the end of November 2024：
- Data disclosed that 72.79 million people in China had opened personal pension accounts.
- December 12, 2024：
- The Ministry of Human Resources and Social Security, along with other government bodies, issued the 'Notice on the Comprehensive Implementation of the Individual Pension System.'
- December 13, 2024：
- The 'Guiding Opinions on Financial Support for China's Elderly Care Industry' was issued by nine ministries.
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