Policy promotes private pensions

Scheme seen as viable supplement to State-run program

In a new guideline focusing on the management of private pensions, the Chinese government has outlined plans to develop a multitiered, sustainable social security system to benefit its aging population.

The guideline, which was launched by five central departments, including the Ministry of Human Resources and Social Security, the Ministry of Finance and the State Taxation Administration, states that a private pension is a supplement to the public pension system and is supported by government policies.

Under the guideline, workers at Chinese companies covered by the State pension system can join a private pension plan voluntarily.

Those who wish to do so should first open an account at a State-run social security platform and register their personal information; the government will use this account to verify their information and offer consultation and other services. Then, the individual should open a private pension account at an authorized commercial bank or financial institution.

Account holders are allowed to deposit up to 12,000 yuan ($1,650) per year into their accounts, and payments can be made monthly, yearly or by other structured installment plans. They can also take advantage of tax reductions and other supporting policies.

The guideline said that the accounts covered by private pension plans are governed by closed-loop performance management, and pensioners can begin making withdrawals once they meet the age requirements — 60 for men and 55 for women — or in the event they lose the ability to work or they migrate outside of China.

They can also purchase financial products using money from their private pension accounts at their discretion, but financial institutions should inform them of the risks involved.

Xie Yongcai, an associate professor at the School of Sociology at the Huazhong University of Science and Technology, told the Chinese online news portal ThePaper.cn that the latest private pension policy was implemented as the country grapples with a declining fertility rate and increased life expectancy.

The aging population has put great pressure on the social security fund as seniors' needs for services, such as healthcare, grow after retirement.

In response, the central government has worked to develop a multitiered social security system, with the basic pension system covering most domestic residents.

President Xi Jinping, who is also general secretary of the Communist Party of China Central Committee, delivered a report to the 20th National Congress of the Communist Party of China on Oct 16. The report said that the central government will improve the multitiered social security system with the aim of extending it to cover the entire population and ensure that it is fair, unified, reliable, well-regulated and sustainable.

The latest figures from the Ministry of Human Resources and Social Security show that by the end of September, about 1.05 billion people were covered by the basic State-run pension system. Enterprise annuity insurance, a supplementary plan for company employees, covered about 72 million people by the end of March.

Li Zhong, vice-minister of human resources and social security, said at a recent news conference that private pensions are significant as they provide individuals with another source of income after retirement to help them enjoy a better quality of life.

Lie Mingjun, director of the ministry's pension security department, said that in addition, the closed-loop management style can help pensioners accumulate capital and avoid withdrawing money early.

He added that the private pension scheme also has a notable tax reduction advantage.

On Nov 3, the Ministry of Finance and State Taxation Administration released a notice on personal income tax incentives for people joining the private pension scheme.

For example, individuals can deposit a maximum of 12,000 yuan per year into their private pension accounts, and that money is exempt from income taxes during the year.

The notice said that tax incentives are applicable from Jan 1 of this year in some pilot cities that have begun implementing the private pension scheme. A list of these cities will be published in the near future by the Ministry of Human Resources and Social Security, the Ministry of Finance and the State Taxation Administration.

In 2020, the 14th Five-Year Plan (2021-25), a blueprint for national efforts to develop into a modern socialist country, stated that China planned to establish a multitiered pension system. The plan was also mentioned in the government work reports last year and this year.

In April, the State Council, China's Cabinet, released a guideline on the development of a private pension scheme that outlined how the scheme would run, what pensioners would need to do to qualify and how they could make deposits and withdrawals. The guideline set the tone for the scheme's implementation and future regulation.

chengsi@chinadaily.com.cn