China Plans New State Pension Firm as Population Ages

China plans to create a new state-owned pension firm to tackle a massive funding gap as the world’s largest population struggles to finance retirement despite decades of economic growth.

The China Banking and Insurance Regulatory Commission is mulling a national pension company with state-owned banks and insurers as shareholders, according to people familiar with the discussions. Details such as the shareholding structure and size of investment are still being hammered out, they said, declining to be identified as the plan isn’t public.

China’s authorities are seeking to expand its pension industry to supplement state-led coverage and build up more long-term funding while benefiting its capital markets. The nation’s elderly population could reach 300 million by the end of 2025, and a gap in retirement savings could reach 10 trillion yuan ($1.5 trillion) in a decade, according to a November report by the Insurance Association of China.

“The aging population is indeed a very big challenge, and we’re actively studying” ways to tackle it, CBIRC Chairman Guo Shuqing told a briefing in Beijing last week, without elaborating.

The CBIRC didn’t immediately reply to a request for comment Tuesday.

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China will optimize its birth policies, gradually raise retirement ages and develop the so-called “third pillar” pension system, according to the government’s blueprint for the five years through 2025, released earlier this month.

The third pillar of China’s pension system seeks to provide commercial options for individuals to prepare for retirement, the people said. Earlier attempts have included a tax-deferred pension product trial, and retirement-target mutual funds.

While China has built a state-led system to provide basic retirement benefits for almost 1 billion people and corporate annuities cover 58 million, the third pillar remains in its infancy, You Jun, deputy human resources minister, told reporters last month. The personal pension system will be voluntary and supported by tax credits, with the savings managed in “market-based” ways, You said.

A pension fund set up two decades ago to tackle the aging issue, known as the National Council for Social Security Fund, has only gathered 2.6 trillion yuan in assets as of the end of 2019. Many Chinese insurers have also set up pension units but they remain small.

The 2018 trial of tax-deferred products has yet to show any “obvious” effects due to limited scale, lack of incentives for financial institutions and agents, and complex procedures, according to the insurance association’s report.

Under Pressure

The first two pillars will be under pressure and can “hardly achieve explosive growth in the near term,” while the third pillar, small as it is, “has potential,” the report said.

China’s biggest pool of funds is China Investment Corp., the sovereign wealth fund with $1 trillion in assets that manages part of the country’s foreign exchange reserves. The CIC doesn’t manage pension assets.

©2021 Bloomberg L.P.

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