China begins pilot program to bolster retirement planning

China will launch a pilot program encouraging personal deposits for retirement planning in five cities to further enrich the supply of financial products and meet the diversified demand for elderly provision.

Starting from Nov 20, four large State-owned banks, namely, Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, and Bank of China, will carry out the pilot program for a year in Hefei, Anhui province; Guangzhou, Guangdong province; Chengdu, Sichuan province; Xi'an, Shaanxi province; and Qingdao, Shandong province.

The cap on such deposits is 10 billion yuan ($1.48 billion) for each bank, said the China Banking and Insurance Regulatory Commission on Friday in a notice issued jointly with the People's Bank of China, the nation's central bank.

The banks will offer three types of deposit products for retirement planning with maturities of five, 10, 15 and 20 years. The interest rates will be slightly higher than the large banks' five-year deposit rate. The upper limit of the principal of such deposits is 500,000 yuan for each customer at each bank, the CBIRC said.

Dong Ximiao, chief researcher at Merchants Union Consumer Finance Co Ltd, said the pilot program is conducive to further enriching the supply of financial products for retirement planning, which will complement wealth management and insurance products and funds for retirement planning. 

"The maturities of deposit products to be launched vary from five to 20 years and the interest rates are moderate. The products will be suitable for the group of customers who are less concerned about liquidity, have low risk tolerance and pursue a fixed income," Dong said.

"To better meet various types of customer demands, China should further enrich deposit products for retirement planning, optimize the maturity structure and take measures to support customers who face an urgent liquidity need. For example, banks could allow customers to withdraw part of a time deposit before maturity and provide the time deposit pledge service," he said.

Dong advised regulatory authorities to raise the cap on such products as appropriate and expand the pilot program to other banks based on the outcome of the trials.

"China should give full play to the advantages of the banking system, the insurance sector and the capital market, strengthen industrial synergy and the integration of resources, explore new types of financial products and models for retirement planning, and create a cross-cyclical, long-term, diversified asset allocation model," he said.

Chinese consumer's inclination to save has been growing amid the economic slowdown during the COVID-19 pandemic.

In the first half of this year, household deposits increased by 10.33 trillion yuan, compared with a growth of 7.45 trillion yuan in the same period of the previous year, according to the PBOC.