Graying of society attracting foreign pension firms

This solid growth potential is attracting global insurers and asset managers.

At least nine out of the 23 insurers who are licensed to sell tax-deferred personal pension insurance products are joint ventures. Last year, China approved the establishment of the country's first joint-venture pension insurance company, owned by Heng An Standard Life.

"Foreign institutions are upbeat about China's retirement income market and are eager to enter the market," said Zhou Xing, PwC insurance industry leader for the Chinese mainland.

Rich experience in retirement product management overseas is likely to help foreign insurers take a considerable share of China's private retirement income market over the long term, Zhou said on the sidelines of a forum co-hosted by Zhongbao Insurance Asset Registration and Exchange Co Ltd and Peking University's Guanghua School of Management.

"Differing from other insurance products, retirement product management relies less on the network of offline branches and more on deep expertise in long-term investment and risk management, which is exactly the advantage enjoyed by foreign insurers," Zhou said.

Asset management giants, meanwhile, are vying with each other in the retirement investment fund market. Mutual fund joint ventures invested by foreign institutions like Credit Suisse, Schroders and Invesco have issued retirement target funds, while others like BlackRock and Fidelity International are seeking to participate as wholly-owned businesses.

BlackRock, which manages over $7 trillion of assets on behalf of clients with more than two-thirds directly retirement related, is excited about helping address the retirement challenge facing China, Geraldine Buckingham, Black-Rock's chair for the Asia-Pacific region, said at a recent forum.

The company has been approved to set up China's first wholly foreign-owned mutual fund manager in August, after the country lifted foreign ownership caps in the sector in April.

Fidelity is actively expanding its team of research and investment staff in China to prepare to issue retirement-related publicly offered products once getting licensed, said Daisy Ho, Fidelity International's head of China operations.

It applied to set up a wholly owned mutual fund unit in China in May and is awaiting authorization. In designing its publicly offered products, Fidelity will fully leverage its overseas management expertise as well as its experience of serving as the research consultant of China Asset Management Co Ltd, a domestic fund manager, Ho said.

Tao Jin, a senior researcher at Suning Institute of Finance, said policy support will be another key factor helping boost development of foreign institutions in China's personal pension market.

The Chinese government is expected to further encourage the participation of foreign competitors as it will help enrich products and offer domestic counterparts more opportunities to learn advanced pension management expertise, Tao said.

In July last year, China announced it would allow foreign firms to establish or hold stakes in pension fund management companies. Though the first foreign company of this kind has not yet emerged, the nation has approved the establishment of the first pension insurance joint venture and the first wholly foreign-owned life insurer, reassuring the world of its continuous efforts to open the sector.

Tao added that despite foreign insurers' advantages in investment expertise, they still need to address weak links such as the lack of innovative product designs and strengthen their network of branches and agencies to thrive in the Chinese pension market.

Experts also said multiple policy incentives are needed to more quickly unleash the great potential of the personal pension market, especially as progress made by the tax-deferred pension insurance pilot program has fallen short of expectations.

Zhou with PwC said efforts to expand the pilot program into more areas are of great importance. The program is now in place only in Shanghai, Fujian province and Suzhou Industrial Park, Jiangsu province. "Once the scope is expanded, we expect booming development of the sector," Zhou said, adding that it is also important to grant greater tax benefits under the program and strengthen investor education to raise awareness and literacy of retirement investment.

The insurance industry should adjust the pricing of retirement products to strike a balance between offering a favorable bid to investors and giving insurers adequate incentives to sell the products, Zhou added.